BANK OF NEW ZEALAND

Hokitika Guardian, 17 June 1921, Page 4

BANK OF NEW ZEALAND

ANNUAL MEETING

WELLINGTON, Juno 17. The ordinary general meeting of the Rank of New eZlaaiul was held to-day. Mr 11. Beauchamp, Chairman ol Directors, presided. With the consent of the meeting, the report of the Directors and the ha lance sheet were taken as read. The Chairman, in moving their adoption, said:—As copies of the report and balance sheet have been circulated among the shareholders, I will now, as is my practice, make some comments upon those of the figures In the balance sheet which call lor special reference.

Capital.— £3,90 1,98 S 10s (id. Increase L'1,‘277,0-l(5 l.‘!s Id.

As provided by flic Act, flic shares which, after the transfer from Reserve to Capital, were fully paid up to £lO, have been still-divided into shares of £l, upon vjiich there is no further liability. Under the Act of 1920, the Bank has the right to create, with the consent of the Minister of Finance, additional capital to the extent of £2,250,000.

Reserve Fund.—£1,375,000. Decrease £075,000. In terms of the report which you adopted at our last annual meeting, £150,000 was transferred to the Reserve Fund out of the profits for the year ending 31st -March, .1020. The Reserve Fund then stood at £2,500,000. The transfer to capital, to which I have already referred, has reduced it- to the figure at which if now stands in the balance sheet, £1,375,000. You are being asked to approve of a transfer to the Reserve Fund of £150,000 from the profits of the past year, and the Fund will then stand at £1,525,000, making a total of' capital and reserves of £4,900,000 in addition to the I per cent guaranteed stock, £529,983, 10s (id. Notes in circulation.— 5 £1,741,492. Decrease £1,023,815. The notes shown in the balance sheet, were actually in the hands of the public, and represent their requirements in the way ot currency at the date of the balance sheet.

Deposits. —£34,4 75,055. Decrease £3,185,955. The decrease in our deposits reflects the stringent, condition of the money market which existed at the date of the balance sheet, and still exists. In November last there was a very considerable drain upon the availaide funds of the community, when the Government placed upon the market a loan of £0,000,000 for the purpose of the settlement of discharged soldiers, and obtained £4,500,000 of the amount. A further demand upon the available credits took place in February, when Income Tax, amounting to about £8,000,000, became due. Further, the reduced earnings from business, the decrease in the proceeds of the realisation of our products, and the opportunities for investing at high rates of interest, have all been contributing factors to this decrease in Bank deposits

Bills payable and other liabilities.— £4,110,573. Increase £403,208. This increase is largely due to our heavy sales of Exchange on London. Reserve for taxes. — £420,000. Increase £BO,OOO. The increase in this amount, no far as the Dominion taxation is concerned, is entirely due to the employment of funds in New Zealand where Income Tax paid by the Banks hears no relation to the profits made. Banks are taxed arbitrarily on the total of their assets and liabilities, and loi the past year our payment of income tax in New Zealand represents 14s Bcl in the £ on our New Zealand profits. The amount which we paid in taxation during the year now under review was as followslncome Tax, £300,051 7s; Land Tax, £17.559 3s; Tax on Note Circulation, £152,538 10s fid; Rates, £8,945 19s; total £485,091 19s 6d. Turning to the other side of the balance sheet, the principal assets are: Coin and cash balances at Rankers’, Government notes, legal tender notes, and bu11i0n.—£6,685,738. Decrease £2,086,547. Money at short call, securities and

bills receivable in L0nd0n.—£8,324,356. < Decrease £11,959,285. The decreases in these two sets of i figures have resulted from the same cause. The requirements of our importing customers, who have had to make unusually heavy payments for goods brought into the Dominion, and the increased advances to which I shall refer more fully later on, have brought about this considerable reduction in om London funds held at short gall, and have also caused us to draw upon the large balances which were held with our London Bankers a year ago. Our investments in London were written down to their market value at the balance date. Since that time they have appreciated in value, and are now worth more than the figure at which they stand in our books. These i j-0 shown in the balance sheet at their market value, except in a few cases where there is no public quotation. In such cases, the securities have been , written down to a figure at which they j i would yield such a return as buyers 1 rfow expect. | Bills discounted. —£2,780,753. In- ! crease £1,278,520. j Other advances. —£27,725,874. Increase £9,790,259. i Landed property etc.—£337,468. DeI crease £23,640. j We have again appropriated the sum !of £50,000 from the year’s profits in reduction of this item, although there j is a very large margin of value in the ' assets by which it is represented. PROFIT AND LOSS, j The net profits, you will notice, ' amounted to £726,900. During the 1 past year we have had the full earning i power of the £500,000 of new capital ’ furnished by the calling up of the bal- ; ancc of the old ordinary share capital 1 of £3 6s 8d per share ; also the benefit 1 of unusual Exchange rates, j. Further, our large investments in j London, which amounted at the begin- ! niug of the year to over £20,000,000, ! and remained in the neighbourhood of | that amount for the first six months of | the year, yielded handsome returns. ! The “carry forward” lias been in- ( creased by £214,755. As a large portion of the year’s profits were represented by exchange derived from the excessive importation of goods, and as wc may look forward to a correspoudi ing reduction in imports this year and

next,' it has been thought proper to piovide in this manner for the expect- !.,] falling off in future exchange profits. advances. Our advances in New Zealand have increased during the period under review by no less a sum than £10,500,000. Our advances are most carefully watched by your Directors and by the Executive, who are fully alive to the fact that in times of uncertain markets and falling values, unceasing vigilance and exercise of one -: best judgment arc essential to avoid loss, not only to Hie Bank, but to the customers also.

Importers and other traders have been obliged to come to us for accommodation far in excess of their usual requirements.

Although imports still continue at a higher figure than is desirable, orders in most lines have been reduced to small proportions, and you may he sure that we shall do our best to see that no further orders are placed until the present inflated stocks have gone into ct nsumption. The we understand are acting in similar manner. It may, therefore, he expected that it will only he a matter of months before the overdrafts of importing firms will commence to run down steadily, and that, before long, our advances to them will have come hack to mors normal figures.

I believe that traders generally now realise the necessity for reducing prices and facing losses in order to re.-tore the equilibrium. In conditions which have existed during 'recent months, we have naturally had to extend increased facilties to those of our customers who are engaged in the Sheep and Cattle Industries. Their receipts have fallen far below expectation, and those who lxiught land at high prices and are heavily mortgaged, will experience considerable difficulty in carrying on. Fortunately, there is a general disposition to face the position with courage end equanimity, and we may hope that, with industry and stricit economy, the position will be gradually retrieved.

The holding of more land than the owner's capital warrants'—much of which has been purchased within recent times at inflated prices and with borrowed money,—is the principal cause of the financial difficulties in which many farmers are now involved.

Despite the warning given by those most competent to form an opinion, the long period of almost uninterrupted nrosperity, which until a fow months ago the Dominion had enjoyed, lulled the great majority of the public into t he belief that continuance of exceptionally high prices for oor primary products could still he looked for. A rude awakening has now come, and although there are bound to he a number of farmers and business men incapable of meeting tlieir financial engagements, these will be but a small percentage of the whole as the Dominion has never been in a better position to stand the strain of lean years.

During these years of high prices for our principal products, your Directors and your Executive have never been persuaded that these would continue permanently, and, consequently, that it was justifiable to base the value of land upon such an unexpected permanency of high prices. Tn our lending therefore, we have to a large extent clc=rregarded what were considered to he current prices for farm land. We have for some years anticipated that the aftermath of ihe war would bo followed by a serious reduction in the realisable rallies both of land and of goods, and that this, in all probability, would mean losses to traders and farmers which might in turn have an effect upon our business. We have, therefore, during past years, taken such precautions as now enable us to face present conditions with equanimity. GENERAL CONDITIONS.

Following my usual custom, I will now refer to tho general econmio conditions prevailing to-day. The whole world is, as it were, in the melting-pot, and it is difficult to say what tho outcome will be. Political and industrial unrest is disturbing every nation, and there are wars and rultionrs

i of wars. This is the aftermath of the 1 great conflict from which the world has 1 so lately emerged. While it wafi in progress, we were frequently warned that it would be followed by a commercial war between the nations, hut instead of this, w© see everywhere industrial strife and political conflicts prostrating the nations and impoverishing the peoples. The world to-day is economically ill. Never in its history has there been such a babel of economic discussion as we havo had during the past twelve or eighteen months, and yet none can say with any degree of truth that Capital and Labour have been drawn closer together. The reverse is th'e case, and the breach has been widened by the deliberate efforts of self-seeking agitators. An ex-American Assistant-Secre-tary of State recently said: — “The world of chaos which the “Great War has left behind it can “never become ordered unless the | “process of ordering is based on the “inexorable rule of political economy “rather than upon partisan politics. “Econmically the world is too ill to “be experimented upon by quack or “unqualified physicians.” The day has passed by when any citizen can afford to ignore the principles of political economy, for the daily life of everyone is inextricably bound up with certain well-ascertained economic laws from which there is no escape. Labour has not realised its responsiblity or shown its appreciation of the serious, position in vyhich the nations ol the world are at tho moment placed.

Extremists appear now to exercise an undue influence in th© Labour movement the world over, and strikes, direct action, “go-slow,” and similar tactics have brought the nations to the vci ge of collapse: Th© Socialistic quacks who rule many of the Labour Unions to-day care not for the future welfare of the workmen or tho general stability and prosperity of the country. It is recorded that during 1919 and 1920, 61,000,000 working days were lost in Britain by strikes, while additional indirect loss is beyond calculation. Since then, tho country has been plunged into the disastrous coal-miners’ strike, which the employers and the Government did their utmost to avoid. It has been stated that about 15,000,000 people were directly affected by this great industrial upheaval, and that is practically one-third of the population of tho British Isles. Tho losses involved in this catastrophe must have run into many millions, and its effects are certain to be felt for years to come. The British nation will lie very much poorer because of this wanton and criminal attack on the people by irresponsible agitators.

The rise that has taken place in freights is, of course, a serious handicap to New Zealand producers. Lately, owing to Government pressure, the Companies have made some concessions which will mean a saving of approximately £250,000 per annum to the producers, but even taking this account, the freights remain abnormally high, having in view the greatly reduced prices that, are likely to he realised for what is shipped.

A great increase has taken place in the world’s shipping tonnage since the signing of the Armistice, and, except as regards insulated ships, the supply is now greatly in excess of the demand. Hundreds of vessels are, at the moment laid up in Great Britain, America, Sweden, and elsewhere, ft is expected that the shortage in insulated tonnage will be i-omedied in tho near future, ns there are several large vessels now in course of construction. BOARD OF DIRECTORS.

Tho term of office of Mr J. H. Upton and myself expired on 31st March last, when our appointments were renewed by the Government. At the first meeting of the Board, in April last, my colleagues did me the honour of electing me to fill the position of Chairman during the present year. The term of office of Mr R. W. Kane, one of the Directors appointed by the Shareholders, will expire on 31st March next, and it is his intention to offer himself for re-election as one of your

representatives on the Board. Mr Kane has arranged to pay a visit to England, and may leave New Zealand almost immediately after the close of this meeting. The Board propose to associate him with the London Board during his stay in England, so that he may he able to familiarise himself thoroughly with our London business. As you are aware, Mr Kane has had a wide experience of hanking, both in New Zealand and Australia. He will, hr his visit to London, have the opportunity of further adding to that expericnce by a first-hand knowledge of London conditions, which will he of much service in our deliberations. The Board, therefore, express the hope (in which T cordially join), that their colleague may be re-elected, so that on Mr Kane’s return, they may have the benefit of his counsel for a further term. Tam sure you will all join with me in wishing him an enjoyable trip and a safe return. On behalf of the Board of Directors, ] should like once again to place on record their acknowledgment of tho unremitting care and attention bestowed uiion the Bank’s important interests in London by the members of the London Board, to whom wo are all greatly indebted. STAFF. To commemorate the sixtieth anniversary of the Bank, which occurs this year, and in view of the high cost of living, the members of the staff have been granted during the year bonuses aggregating more than £60,000, special provision being made for married men drawing less than £425 per annum, who received bonuses amounting 10 J" per cent, of tlieir pay. Salaries and allowances have also been revised on a liberal ba'D, a l * we feel sure that it is your desire teat oor employees should receive adequate remuneration.

Last year l mentioned that the Board had decided upon a scale of pay for our younger men—that is, for those whose period of service has not exceeded 10 years. It will interest you to learn that no fewer than 21 per cent of the young men of those years are now receiving more than the scale rate of pay. { We have also offered special induce- : nients to the members of the staff to I study for the Diploma of Banking, for the granting of which arrangements J

have been made by the J3ank Officers Guild with the University of New Zealand.

A bonus of 10 per cent has also been paid to those of the Bank’s Pensioners who are drawing less tlinn £350 per annum in pension, and to certain widows and other dependents of deceased officers.

Before closing my remarks about our staff, I should like to express, on behalf of my fellow-Directors and myself, our warm appreciation of the service which has been rendered to the Bank during the past year by its staff in New Zealand, London, and other places where we are represented. The last six months has been a very anxious time for the General Managei and the chief executive officers, as well as for the Branch Managers and other senior officers, and they have not spared themselves, but have given the closest and most unremitting attention to the Bank’s interests. The present strength of the staff is : 1121 men, 196 women,a total of 1317. Mr Alexander Kay, who has been our Manager in London for more than I ten years, will shortly retire from tme I service, as lie has passed by some years ! the.ordinary age limit for retirement. Mr Kay’s services to the Bank have been of the very greatest value, and his place will be extremely difficult to fill.

Mr Robert Mill takes the management in London. Mr Mill needs no introduction, and his appointment to the higher post is,l feel sure you will agree, weli-deserved promotion. FINANCIAL OUTLOOK.

Th© new conditions that have arisen have brought about a scarcity of loanable credit, with the result Unit interest rates have materially liar iened. On first-class security, money is not ver y readily obtainable on mortgage at even 7 per cent., and Government Bonds have recently been bought in tho open market at prices which will yield the investor from six to six and thieequarters per cent. As a consequence of this, the rates charged on bank advances and those allowed on fixed deposits have been increased. Almost immediately after th * Armistice, the local bodies throughout the Dominion took stock of the works needed in their respective localities, and as quickly as possible, set about obtaining the authority of the ratepayers to raise loans for local public works. These authorities ran into many millions and those who were fortunate enough to go on the market in 1919 and the frst half of 1920 obtained the money they required at 5J per cent. Later on, it became difficult to obtain money at so low a rate, and local bodies had to offer the full rate then permitted by Statute 5,i. per cent. When this was found ineffective, the local bodies we--e given authority to offer 5j per cent., and in some few recent cases, to sell debentures at sucli a price as to y’eld the investor 6 per cent. But even this rate is not attractive, in view of the return obtainable from purchases of Government Bonds, and of the fact that sound commercial concerns are offering bonds at par at as high as 7} per cent, free of income tax.

The scarcity of credit led to another unexpected development during the short session of Parliament in' March last.

When our half-yearly meeting was held in December, 1907,-more than thirteen years ago,—a monetary crisis in the United States,of America was one of the outstanding topics of the time, and was alluded to in 4 he lemarks which I addressed to the shareholders upon that occasion. In view of the experiences through which the United States had just been passing and • their evident causes, T sounded a note of warning in cornection with the action of several large trading concerns in New Zealand which were making a practice of receiving deposits from the public while holding no reserves in the shape of liquid ' readily realisable assets to meet these deposits when required.

Those who were present were asked to picture what would happen if, during a period of depression, these companies were called upon to discharge their obligations. Since that tune, the system to which reference was made has become much more widely spread. Not only public companies, but private concerns and Local Bodies of all kinds have adopted the practice of obtain ng from the public loans which they c &-!ed “dejpojsits,” and which the lenders no doubt regarded aR being is readily avail able as deposits held by the Bank., In most cases these deposit-receiving concerns had no liquid resources whatever, but were borrowing money in this fashion in order to keep their oveidrafts down, or to finance tram actions in which their Bankers would not have assisted them.

It is probable that deposits of this kind amount do not loss than ten million pounds. Now that the prosperous times of the past few years, with their abundance of money, have ended and there are many opportunities of obtaining highly remunerative investments, ‘.here lias naturally been a very considerable withdrawal of deposits held by tlnse companies and firms. The Banks in Now Zealand found some months ago that they were being approached on every hand by their borrowing customer's with requ-sts for increased accommodation. These requests were assuming in the aggregate very large amounts, and it became evident that discrimination must be exercised, not so much with '-egard to the safety of the desired advances (as to which there was usually little doubt), but as to the objects for which they were askod. A large number of such requests were being made in aider that the applicants might repay the deposits which they had taken and >vHch were being called for by the depositors. Had such applications been granted by the Banks they would not have been able to meet the legitimate requirements of the farming and commercial community, and the Banks therefore notified their borrowing customers that the arrangements between die in were not to be availed of for tlie puroos' 1 o f repaying such deposits. Such a step on the part of th-’ Banks undoubtedly placed many trading concerns and local bodies in » ci y difficult position, but it was felc by the Banks, with a deep sense of •••’■>ponsibilitv to the community as a whole, that the course which they were taking was a wise and proper one. A. a consequence of this, I understand

that some of the concerns wh.ch had taken deposits and could' not repay them without that assistance, from their Bankers which they were unable to obtain, laid the position before the Government with the result tha; on 21st. March last, Parliament passe;’ an Act extending the Mortgages Extension Act by declaring a Moratorium urtil 31st. Mav with regard to all deposits except those held by the Associated Banks and the savings Banks, as • providing that the borrowers could, .by giving notice to the lenders before hist'. May, and offering a higher rate of interest, postpone payment of such deposits until 31st. December next. We understand that this U’ttei provision has been widely taken advantage of and that most deposit-receiving eompanie and Dublin Bodies V.V* notified depositors, whose money is at call or would in ordinary course lie repayable before 31st. December nex* that repayment will not be made unt that date. It is generally believed that, when Parliament next assembles, me legislation will be introduced to compel those who accept deposits from ■vie public, to do to some extent, what Banks are required to do,-hold a reasonable proportion of these deposits in a tm more readily available than if the money is used as business capital. To make provision for repayment o their deposits, some compam is are raising the necessary funds by the issue of bonds at from 3 to 1(V years’ currency ; others, no doubt, will in l)nc»Med Capital ; and some may require to issue Preference Shares.

Whilst a certain amount of inconvenience is being experienced by some of these depositors, it is unlikely that any of them will suffer loss, and in +he long run the result will be a much-needed improvement in the conduct of the finances of these deposit-taking concerns. CONDITIONS IN NEW ZEALAND.

The conditions in New Zealand reflect in some degree the adverse factors ruling in Britain, and disclose features peculiar to the country. The scarcity of merchandise in New Zealand, due to the transport and other difficulties arising out of the war, induced importers to send abroad orders much in excess of requirements. These orders, instead of being executed over a considerable period of time, as was anticipated, were dumped on the country in a few short months, with the lesult that the imports into the Dominion were on a tremendous scale. At the .sametime, owing to the Imperial Government discontinuing the purchase of wool and meat, and the slump in the market value of these gObds, there was a contraction in the exports. Shipping difficulties also rendered the position serious bv hampering the export trade. I'TTUItE OF PRODUCE MARKETS AND TRADE.

It may possibly he that, with so many causes. combining to make sheep and cattle-rafsing less profitable than in I lie past, some of our farmers who own suitable land, will turn their attention to the growing of wheat and othei crops, for which there is a satisfactory local market. This may afford a certain measure of relief to the situation. How long the monetary stringency and industrial depression will iast depends upon a variety of circumstances, but mainly upon the rapidity with which the economic unity of the world is restored. All the Great. Wars of the past immensely stimulated the economic development of the world, and invariably gave a powerful impulse to the greater use of labour-saving machinery. Probably we are on the eve of some such economic developments. After all, we must rely upon hard work and thrift and the moderation of party politicians in arranging the national affairs. There will he a continued demand if or New Zealand's products: our wool, meat, butter, cheese, hemp, and tallow are all wanted; and the purchasers are willing to pay up to the limit of their purchasing power; that limit just now is a low one, but it will expand, and so will the demand for the products. Our trouble just noi\ is in adjusting the cost <>l production to meet the changed conditions. As soon as prices of commodities show some signs of stabilisation, there will be manifest confidence in the situation, and on that confidence a new and enduring structure of trade and commerce will be built. The present is a time fortlie avoidance of extremes —extreme optimism and extreme pessimism. It is a time when conditions should he looked at squarely and dealt with courageously. New Zealand is not feeling the pinch as seriously as some other countries, and if all sections cooperate for the common welfare, the recovery will be speedier. Sustained effort in production, efficiency, and economy should be the keynote of all classes of the community in these critical times. 1 now move that the report and balance sheet, as submitted to the meeting, he adopted. if this resolution he affirmed, the dividend, viz., 1J per cent on Preference “A” Shares, and GJ per cent on Preference “B” Shares —making a distribution equivalent to 10 per cent lor the year upon each of those classes of shares—and Is Gd per share upon ordinary shares—making a distribution equivalent to 2s 8d per share for the jvar—will lx? payable in Wellington on 18th June, and-at Branches on receipt of advice. Mr R. W. Kane said:—l have much pleasure in seconding the motion for the adoption of the report and balance sheet now submitted to shareholders, and in doing so, I desire to congratulate shareholders upon the satisfactory dividend declared, and also upon tlu. improved position of their holdings brought about by the recent legislation. The Chairman has so fully dealt with the various ramifications of the Bank’s business, that little remains for me to add to his remarks. - There are, however, one or two points „n which I would like to make a few observations. At the annual meeting two years ago, several shareholders expressed a wish that the Board should do something more for its officers, and we have not been unmindful of their wishes. In many cases, not onlv have officers’ permanent emoluments been increased, but substantial bonuses ranging up to 25 per cent have been granted, and, taking it as a whole, 1 think we now have a satisfied and contented staff. When addressing you last Deeembei, my colleague, Mr Watson, referred to a possible issue of further capital. While the Board has so far not,conside red this question, I here desire to |

say that, should our business later on make this course desirable to maintain a strong finance, such further issue would be made in terms of the recent legislation both as to Preference and Ordinary Shares and dividends declared thereon, in such proportion as is thereby provided. Regarding my intended visit to London, to which the Chairman has made reference, I feel that a close study of matters relating to our London business and finance, made on the spot, added to my knowledge of New Zealand and Australian conditions, will further conduce to mv usefulness as one of your Directors.

To these few remarks, T have only to add that I shall again stand as one of your representatives at the meeting to be held in December next, and I trust then to obtain the same expression of your confidence as I have hitherto enjoyed. _______