WILL THE EXTRAORDINARY PROFITS OF BANEKING CONTINUE?

Southland Times, Volume I, Issue 67, 2 November 1864, Page 3

WILL THE EXTRAORDINARY PROFITS OF BANEKIN G CONTINUE?

The JJnion Bani has jiwt' issued 5 a Eeporfc containing ■what iß^ "perliapa tte moat Temßtrkoble statement- of banking profits jwhich l.was.i ever given to the public, even after tie many flourishing narratives of the last few years. It is shown in this Report that the Union Bank has made, in the past half-year, £154,370, which as its capital is '£780,000, amounts to nearly 40 per cent, per annum. It is true that the capital of the hank is 1 too small for the present magnitude of its grow- ' ing business, and, therefore, the proprietors have--1 wisely agreed to augment it. But, even allowing for this circumstance; the result is very striking. The proprietors have agreed to raise the capital to £1,200,000, and upon this sum £154,000 for a half-year is 25 per cent, per annum— a very large dividend to pay,upon a divisor so largely augmented. The source of these profits is very evident by comparing this report with the last : — On the 31st.December the liabilities of the Bank to the public were... £16,472,278 30the'Jun©..> . s 15,&78,&7?> An increase of £3,000 000 in six months, although this bankhas not during the late half year taken off the business of any other. No one will expect — the able managers of the Union Bank would least of all expect — such an extraordinary and remarkable rate, of increase to • continue every halfyear. But the remarkable report and the figures it contains cannot but suggest the question — can the extraordinary profits in the banking trade continue ? Will, they be permanent, or are they only temporary ? The answer to this question depends on the answers given to two other and subordinate ques- | Hone. ITirsfc, will the value o£ money he as great , on the average as it has been during the last - few years ? — and, secondly, will bankers be able to get aa great $ share of the profits of the money in

their hands as they have recently done,? The net profits of the banker are determined by two elements ; the gross yield of the money loft with him, and the allowance ho has to make to the customers who leave it with him. Other trade expenses Jare pretty constant, and if we know these two elements, we can predict the banker's profit. ; As .to the value of money. Putting out "of tho question particular causes of exception, such as the bullion drain to pay for Indian and other cotton, we do not doubt that the average [value of money will be as high during the jnext few years as it has been .during the last ;few. There is an agency in operation tending ito equalise the value of money all over the 'world, to make it dear where it has often been cheap. This agency io international | lending. We in England are beginning to lend by Anglo-Indian and Anglo- Austrian, Anglo-Italian, and a crowd of similar institutions, English capital to foreign nations. Heretofore there was very frequently in this country what we call a local congestion of capital. The savings of the country could not be easily and profitably employed, and consequently the value of money, as it is called — the rate of interest for short loans in Lombardstreet, as it ought to be called — became excessively and dangerously low. „ Now, mdependentlv of other events, we are obtaining an agency and instrument of augmenting power, which will transfer capital from Lombardstreet, where it is cheap, to remote but improving and stable countries, where it is dear. The general financial intelligence, as we have often shown, tends in the same direction. The Bank of England and the English Government used to have nearly a monopoly of good credit. They were the only reliable borrowers known to' be such. Now they are but two among many. The public understands that very ~ many other investments are quite good enough — have quite as little risk in them as, human calculations need to take account of— and therefore, they do not press into the funds and accumulate this money in Lombard-street as they used to do. They lend to some one of the numerous applicants of good credit readily and confidently. Again, the management of the Bank of England has so much improved that we need no longer fear these periodic crises and panics which used to mark almost every long period of very unfavorable exchange. The Bank used to let their reserve run so low that they could hardly frighten tho public either by the smallnCss of the reserve itself or the efforts they made to augment it. Now the Bank, at the first symptom of realy unfavorable exchange, raise the rate of interest much and quickly, and so borrow the supplies which are needful in their temporary difficulty. We are, therefore, spared those periods of very cheap money which occured after the errors of 1847 and 1857. If we went back -twenty years, we should nave to add that, under the operation of free trade, the foreign commerce of the country increases year by year, and very rapidly. Before the repeal of the corn laws, sudden dear corn, sudden periods -of agricultural distress and of manufacturing distress, threw everything else into confusion. Now, the most marked and most healthy feature of the times is steady and progressive development. Before 1846, there was no steady opening for augmenting capital in our foreign trade* Now, there is such an opening ; and, consequently, the value of loanable capital tends to be greater and Bteadicr than it was. These_ causes enable us to answer one of our questions with some confidence. We cannot bring ourselves to doubt that, foreign war or other caaualities apart, the average value of money will tend to be higher, and also to be more steady than it used to be. This answer to the first question is therefore favorable to the banker, but the answer to the second is not so. We shall not be misunderstood if we say that the banker is begining to be found out. People; are beginning to understand that their money isof greater value than they used to imagine. Such statements as this of the Union Bank — statements in which every joint stock bank now vies with all others — advertise tho valuableness of everybody's money in the most unsuspicious and effectual manner. The result is twofold— first, everybody tries more and more to get more and more interest allowed him by his banker. Every customer is more and more anxious to' share in the vast profit which he is plainly, and even ostentatiously, told was made of his money. Secondly, business people who are generally borrowers of the bank, or -who have to pay a commission as a recompense for the trouble they give, are beginning to hint, " We are people of influence. We may not leave with you much money of our own, but we have control over a good deal of money, and our relations and our dependents and people who have confidence in us have a good deal of money ; and unless you charge us less commission than you used to charge us, we shall advise them to take their money to the competing bankers and not to you." This, of course, is not said explicity in so many words, but it is looked, and hinted and understood. These two causes will, as times goe3 on, materially reduce the profits of banking. Though the value of money will tend to be higher than ft was, the eagerness 'of a more intelligent and more experienced public will tend to be greater to have a share in the yield of their own money. Still, banking must long be a very profitable trade. The immense profit on which we have been commenting may well bear some re-duction.-r-Economist.