WELLINGTON NEWS

Hokitika Guardian, 8 May 1928, Page 4

WELLINGTON NEWS

BORROWING IN LONDON

(Special to “ Guardian.”) WELLINGTON. May 5. By the time tliese lines appear in print the late of the New Zealand loan for C 0,000,000 offered in London will have been decided, and it would be surprisin'' if the loan is not a success, that is to say if it is not freely .subscribed by the public. The New Zealand Government is breaking new ground in offering the loan at 1) per cent., for during the past four or five years all colonial loans have carried 5 per cent, interest, and have been offered at .1 to 2 per cent discount and even then have been failures, that is the underwriters have had to find the bulk of the money. Because so low a rate of interest as I' per cent is offered the price of the loan is at a big 'discount, that is 94) per cent. This means that the Government will receive £94 10s, less the commission ai d charges, and will pay interest oh £IOO at TV per cent. As an inducement to accept a low rate of interest subscribers get a concession. At 91) per cent the flat interest is very nearly 5 per cent, all the same it means a saving in interest to the New Zealand Government. \\ ith this loan of £5,000,090 the total raised in four years in London is .024,000,000 or an average of 0(5,000,000 a year, which is excessive lor so small a population as New Zealand’s, and it is w wonder that the .Minister ol finance talks of tapering off borrowing, but that need not In; taken seriously, for lie will go on borrowing and spending and squandering for years to come. On November Ist next New Zealand has to redeem maturing loans lor C 29.000.000 bearing interest at I per cent. Tlie Government is very rightly taking steps to convert a portion ol this maturing loan, and an amount w to .C 0.000,000 million is to be converted into new stock. As an inducement to holders to convert they are being offered a premium of Cl 10s, that is a holder of existing stock for £IOO will get a new certificate for £lO4 K!s on winch 4 per cent interest will be paid. On the amount to he converted ii means adding. £225.030 to the debt of the Dominion and CIO,OOO more will be payable annually in interest. II the wiiole C 29.000.000 is converted on this basis it will mean an addition to our debt of £1,005,000, without any quid proquo, and the interest .will be increased by C. 12,200. It is a question whether the Australasian States and the Commonwealth will issue loans this year at 4.)- per cent, and if they do whether they will succeed. The London money market shows greater ease to-day than it has done at any time during the past two years, hut it must he remembered that taxation is heavy. and investors must look for a Fetter yield than when taxation was on a small scale. However, colonial loans rank as trustee securities, which is a big advantage, for as a general rule trustees look for safe investments rather than high rates of interest, and colonial loans are sale. V> ith the improvement in the London money market there will he o > need for Australian States to venture on die New York money market, where loan dotation is oil a tliflOTeiit basis to that of London. Tn London loans are underwritten, and then oiTered to the public at the price at which it is underwritten, and if the entire loan is not taken up bv the public the underwriters make up the difference, in New York the loan is sold to the public at an advance. It is o question which method is the better, but most people will incline to tlie London system which is open and above board. OVER DRAFT RATES.

In his speech at Cambridge last week the Minister or Finance stated that be proposed to discuss further with the banks the question of overdralt rates, lie said that lie had had picvious interviews with the banks, and they agree that the last quarter’s figures are satisfactory, but they hold the view that further time should elapse to be assured that the improved conditions have stabilised. 'I be banks are acting wii.b their customary caution. They v.ere forced to raise the overdraft rate I '-cause there was not sufficient credit

at their disposal to meet the demands for oven drafts. The banks were the victims of unfair competition on the part of the State departments, including the Post Office Savings Bank, which diverted funds that in the natural course would have gone to the banks. To meet this competition the banks raised their rates for fixed deposits and also their rates for overdrafts. these being eo-related. If the banks are to reduce their rates lor overdrafts, they most, also reduce their rates for fixed deposits, and bow will the reduction affect bank deposits? 'they would no doubt like to reduce rates, but they cannot net on mere sentiment. Another few weeks will give time for the formation of clearer opinions.