CITY OF GLASGOW BANK.

New Zealand Times, Volume XXXIII, Issue 5529, 16 December 1878, Page 3

CITY OF GLASGOW BANK.

(From the European Mail.) In regard to the relations that snsisted between the City Bank and the Now Zealand Land Company, the secretary, Mr. James Ellis, writes as follows:—“With reference to the statements which have appeared in various quarters, that the New Zealand and Australian Land Company, Limited, are indebted to the City o£ Glasgow Bank in a large amount of money, I beg to state that this is not the case. On the contrary, the bank is a debtor to the company," The report of the accountants deputed to inquire into the affairs of the bank was published on October 18, and discloses a system of reckless mismanagement and of deliberate falsification of accounts such as have never before been exposed in even the most disastrous of failures, and which, it is to be hoped, the Legislature will render it impossible to occur again by making the bank managers more directly responsible to the Government and the law for the correctness of their balance-sheets. The general result of the investigation is that the bank has made £7,000,000 of • bad debts, and that there is a deficit in the accounts as compared with the liabilities of £5,000,000, making the total loss with the capital £6,000,000. To meet the losses alone, irrespective of the expenses of liquidation, will require a call of £3OO per share, and even when this is paid the liability of the solvent shareholders will not cease, but they will be liable to further calls up to the last penny they possess, to provide the amount which their poorer co-partners cannot pay. How long the bank has been insolvent does not appear by the report, which only goes back to 1873, when the accounts were falsified

to the extent of £1,000,000, by items which have been since regularly brought forward from half year to half year, and what can have been the system of direction or of audit which could have allowed such an item to continually appear and large dividends to be paid it is difficult to imagine. From the commencement of the present year, if not before, the weekly returns to the Government of gold held against notes issued have also been deliberately falsified by from £60,000 to £300,000, a week in order to conceal how large the issue of notes was as compared with the security supposed to be held. The last balance-sheet presented to the shareholders represented the position of the bank as £3,000,000 better than it was, irrespective of so-called securities being taken at their par value, whilst they were next to worthless, if not wholly so, and in one instance the shares of an American railway company were returned as worth £346,500, although at their present market price they would only produce, according to the valuation of the accountants, £11,950, or something like Bd. in the pound, and other securities represented to be in the bands of the bank appear to have been previously mortgaged iu London. The accountants estimate that against liabilities for £2,320,592 the bank holds securities for £688,185, a deficit of £1,632,407; second liabilities, £1,864,627, with' securities of the probable value of £452,852, a deficit of £1,412,044 ; third liabilities, £1,142,987, probable value, £310,532, deficit, 832,455; and fourth liabilities, £464,188, probable value, £71,135; or a deficit of £393,851; the total deficit under the four descriptions of liabilities being over assets £4,000,000, the accountants adding that it is not improbable that even the values fixed by them upon the securities are over-estimated. The bank holds life policies against the bad debts of £611,051, the surrender value of which is only £74,014, whilst the annual premiums in respect to them amount to £17,214. The company also hold shares in the New Zealand and Australian Land Companies, of which the accountants have formed a rather favorable opinion if they can bo held for some years, bat upon which, if forced upon the market, a heavy loss mnst ensue. Even whilst the company has been so thoroughly insolvent as not to fcnovy which way to turn, to raise money, we find it purchasing, ns late as October last year, an estate in Poverty Bay, New Zealand, which could not by any possibility be of any value as an investment for some years, and they have also properties iu New South Wales and Queensland which have not even yet been paid for, and the acquisition of which could in no way be reconciled with the principles of true banking. The accountants say that “ the assets will be increased and the loss proportionately diminished by whatever dividends are recovered from the, estates of the debtors and obligations in respect of the above debts,” which wo cannot suppose will materially alter the position of the bank’s estate. The: report will no doubt greatly discredit, at least for a time, all banking institutions in the eyes of the public ; but it would be not only unfair, but absurd, to suppose that other institutions have been so fraudulently and recklessly managed as the City of Glasgow Bank, and, above all, the Scotch banks should hasten to have their assets and liabilities verified by professional experts altogether independent of the directors if they wish for the full restoration of public confidence. A meeting of the shareholders was held on October 22, and a resolution was agreed to in favor of voluntary liquidation.

A circular was issued on October 22 announcing the failure of Messrs. James Morton and Co., of Glasgow, owing to the stoppage of the City of Glasgow Bank. It has been well known from the first that this firm was indebted to the bank over £2,000,000, and that it was highly improbable that all the efforts which Mr. Morton has been making in London and Scotland could prevent his firm from becoming bankrupt. Mr, Morton was the manager of a company called the New Zealand and Australian Land Company, whose purchases of laud in New Zealand seem to have been in some way made with the money obtained by Mr. Morton from the City of Glasgow Bank. Doubts have been raised as to the legal hold which the bank has on this laud in consequence of the secretary of the company having addressed a letter to a Glasgow newspaper denying that they owed the bank anything, and asserting, on the contrary, that the bank owed the company money. So far as we have been able to ascertain, the bank’s lien is a valid one, but looking at the magnitude of the amount, this is a point which should be cleared up.