BANK OF N.Z.

Taranaki Daily News, 3 November 1920, Page 5

BANK OF N.Z.

BILL IN THE HOUSE. MORE GOVERNMENT PROFITS. PREMIER DETAILS PROPOSALS. By Telegraph.—rress Association. Wellington, Last Night. In moving the second reading the Bank of New Zealand Bill in the House of Representatives this afternoon, the Prime Minister said that so far as he had seen, with one exception, thert had been no adverse criticism of the proposals.

Mr. Massey proceeded to place on record the history of the bank from tiie time of its foundation to the present date, including the difficulties which Jed to the Government coming to the assistance of the bank, in 1891 He recalled that of the members who were in the House on that date, only two were now members—the Speaker (Sir Frederick Lang) and himself—while two others, Sir Wm. Fraser and Sir Francis Bell, were members of the Legislative Council. He remembered well the passing of the Bank of New Zealand Guarantee Act. The House met on June 22, and they were asked to deal with the Bill on June 29 as a matter of urgency. The Act authorised the issue of a further £2,000,000 of capital, guaranteed both as to principal and interest by the Government, and also a call of £3 6s 8d was made on 150,000 shares.

PROPERITY OF THE BANK. The Prime Minister referred to the various steps made in the recovery by the hank, and especially to the splendid success which attended the work of the assets realisation board, which enabled the bank, in a, few years, to pay 20s in the £, and return some of the assets to the bank. That was due in a large measure to the fact that separator and refrigerating machinery came into general use, enabling our products to find a better market. The present position of the bank was that it possessed in capital, reserve fund, and undivided profits a total sum of £5,420,212. That was a splendid position for the bank. During the last few years the bank had been on the top of the wave of prosperity which had been experienced by the whole of the country, as the bank prospered in proportion 10 the prosperity of the country. They hope;! it would continue to prosper. They might expect that history would repeat itself, and they " would experience adversity in future, but the bank was now in a position to meet adverse conditions. For the year ended March 31 st last the bank paid ; n taxation: Income-t;ax £2*2,097, note circulation tax £140,008, laud tax £17.123, a total of £435,288. Vx the same year the Government received in dividends on its A ami B prefer.-ncc shares £93,750. The rate of interest on debentures issued for the payment of A shares was 3J per cent, and "for B shares (costing £375,000)-, 4 per cent. The total interest paid by the Government on debentures was £32,500, leaving a net annual profit from the shares of £61,250. The Government thus received by way of taxes and dividend from the bank the sum of £406,538. In addition the bank paid £7630 in municipal rates. TAX ON THE BANK.

He explained that batiks were not taxed upon their profits in the same way as ordinary commercial houses, but upon the total business done. The bank at present paid about 30s per cent, on its business, and on last year's profits it paid about £140,000 more than if it had been taxed on the same basis as a commercial house. The debentures issued by the Government in payment of B shares had not been sold, and the bank had, since their issue, written down their value by £120,000 The price paid for these shares, including a premium of £125,000, was £375,000.

The total number of shareholders of the bank was 3100, of whom 1700 were resident in New Zealand. Of those in Great Britain, 400 had been on the register since as far back as 1895. From 1805 to 1901 ordinary shareholders received no dividends, though substantial profits were being made, as every effort was being made to build up a reserve. The dividend commenced at 0 per cent, in 1902, and had risen to 17V 2 per cent. ,for last year. Overdrawn accounts of the bank under £3OO numbered 7530, and between £3OO and £SOO, 1339, equal together to 68 per cent, of the total of overdrawn accounts. This was a contradiction to the impression hehj by some that the bank did business mainly with wealthy persons. Without wishing to make any invidious comparisons the Prime Minister said he congratulated the Commonwealth Bank and the Commonwealth upon its connection with that bank, hut so far as he knew the State had noli drawn anything in dividends from that bank, nor in taxation.

INCREASING COUNTRYIS SHARE The Prime Minister quoted instances of the issue of new shares fully paidup by British banks in recent years to show there was ample precedent for the course it was now proposed should be taken by the Bank of New Zealand. He proceeded to refer to a letter from the General Manager of the Bank of New Zealand dated June 22, in which the proposals were submitted to the Government and from which the negotiations proceeded. The General Manager set out the strong financial position which the bank had attained since 1894, and which led the directors to believe steps might now be taken to re-instate a portion of the capital written off. The strong position hod been reached by limiting dividends and transferring large sums from profits to reserve. The directors believed that a portion of the reserve, which stood at £2,500,000, should be applied to reinstating a portion of capital written off. on a basis which would be just to ordinary shareholders and the GovernI ment alike. At present the Government had a ! one-seventh share in the hank, and thp first charge on the revenues of the bank i represented by its A preference shares. I The proposal of the directors was that the Government should he enabled to participate in the proportion of onethird in the future profit of the bank. It was proposed to increase the total shire capital to £3,375.300, made up as follows: A shares £500,000, B shares £t525,000 (at present £250,000), ordinary shares £2,250,000 (at g present £1,500,000). The total amount paid in dividends last yee,- was: A shares £50.000, B shares £43,750, ordinary shares £268,720. The rate on A shaves , was 10 per cent,, and on 8 and ordinary

shares 17J per cent. When the distributions were made the bank would be able to pay in dividends £356,250. Th« Government would reecive £112,500, and this, deducting the amount paid in debonture interest, would yield a net profit of £77,500. The dividend on A preference shares would be fixed at 10 per cent, instead of being liable to diminish to 5 per cent. The Government would have the right to a return of capital represented by £625,000, instead of £250,000. In profits distributed over £308,250 the Government would share in the proportion of one-third instead of one-seventh.

POSITION WILL IMPROVE. In the last seven months, the Prime Minister continued, the funds held in Ltndon had been reduced by dlunt £10,000,000. There had been a contraction in the note ismie of £l,?'.)fl,!)00 up to August of this year. Money had (ten coming into New Zealand a 1! the time from the produce soid to the Imperial Government most of which was paid for while it was still in store. During the last three months' very little had been coming in. That the position would now commence to improve was shown by the fact that cheese could now be shipped up to 100,000 crates a month. This would be a great help, as each crate of cheese represented about £9. The funds held by the bank in London had enabled the bank to meet the requirements of its customers in London, and also by exchange with other banks to meet the requirements of other customers.

The amount of the reserve that was being distributed was £1,125,000, and of this the Government was receiving one-third instead of one-seventh, to which it would be entitled according to its share in the bank. It was receiving £375,000, which was, roughly, £214,000 more than its share according to its holding. Mr. T. M. Wilford (Leader of the Opposition): "Tell us what the shareholders are getting?" The Prime Minister: "They are getting their share, but from our point of view it is a very fair arrangement." He added that the Government holding of shares would be increased from oneseventh to one-third. The last dividend to ordinary and B shareholders was 17i per cent., and on distribution the returns would be 11 2-3 per cent. Under the proposal for the distribution of extra dividends if the profits were increased by £300,000 over the amount at which the Government would commence to share at the rate of one-third, the Government would receive £143,750 or 31-105ths, and ordinary shareholders would receive £402,500, or about twothirds. Additional revenue from the bank was estimated at about £20,000 per annum. The Prime Minister read letters from the auditor of the hank, the Secretary to the Treasury, and the Attorney-General approving of the proposals.

MR. WILFORD'S CRITICISM. Mr. Wilford said he had listened carefully to Mr. Massey's _ speech, and he listened in vain for any hint as to what the shareholders were getting out of this transaction. Ho had seen many Bills introduced into Parliament, but he had never seen one yet that, if it offered something to the State, someone else was not getting something out of it. Mr. Massey: "They are getting, their position stabilised." Proceeding, Mr. Wilford recounted the incident when the country came to the rescue of the Bank of New Zealand in 1594, claiming that it was the statesmanship of the late Mr. Seddon then which made it possible for Mr. Massey to make the speech which he had made that day. Mr. Massey: "I frankly acknowledge that." Continuing, Mr. Wilford pointed out that these Banking Bills always appeared to be passed in a rush. In this case Parliament was not responsible for the rush; the blame was all on the side of file Government, for the Premier had read a letter he received from the general manager of the bank on June 22 last, which pointed out the advisability of this legislation, but the legislation was only coming down now. In further criticising the Premier's speech, he said that the Premier's remark that the Bill would "democratise" the bank was the veriest "political eyewash," because the present shareholders would mop up all the available shares, and no new blood would come into the bank at all. The Premier had said this Bill would increase the Dominion's share in the bank from one-seventh to onethird, but so far as he could see there was no proposal to increase the country's share of control. This should certainly be done, and done in this Bill. The qualification for the directorate ( £W0O) was too high, and was certainly not calculated to democratise the bank. Again, the holding of any single shareholder had been increased from £GO()0 to £60,000. Was that calculated to democratise the bank? The public, he declared, would not get "a look in" under the Bill, because the shareholders would get the lot. That explained why there had been such a fcig speculation in parcels of Bank of New Zealand shares during the past few months.

AN AMENDMENT. Mr. Wilford wanted to see some provision made for the men who went bankrupt through Holding Bank of New Zealand shares in the bad old days of the past. He asked if we had no moral responsibility to these men. He also wanted to see a clause inserted in the Bill to increase the pensions of the men who gave the best of their lives to the hank in the days of its adversity, and who retired on pensions much too snull to meet the necessities of the moment. Mr. ,T. Craigic (Timaru) said lie proposed to move the following amendment: "That this House is of opinion that tlu' Government should set up a special committee, representative of the commercial, agricultural, and industrial classes of this House, to inquire into (1) the relationship between the State and the Bank of New Zealand as now existing, and to submit recommendations a.s to the manner in which the present capital interests could be bc*t adjusted with a view to promoting in the most effective manner the permanent interests and future prosperity of the Dominion; (2) the desirability of the Government taking steps to have the bank State-owned and managed, and. if desirable, what terms and conditions would be fair and reasonable in the interests of the State and private shareholders; (3) whether it is desirable in the interests of the State to establish an independent State Bank, and, if so, what proposals or steps should he adopted; (4) that the committee report to the House next session of Parliament." When the debate was resumed in the evening, the Speaker ruled that an amendment could not be moved at the present stage, but would bo in order after t,h» s»rt<m<l yeadimr

STATE BANK ADVOCATES. Mr. M. J. Savage (Auckland West) urged that the time had arrived for the establishment of a State Bank, wholly controlled by the Government of the country. Mr. J. McCombfi (Lyttelton) said lie would heartily support the suggestion of the member for Auckland West that the time had arrived when there should be a. State Bank to assist, our primary and secondary industries, and to assist the commercial life of the country, instead of parasitical institutions like the existing banks. He would support Mr. Craigic's amendment, because he felt tlu\s Bill was being rushed, through, and was being accepted Because of the misleading explanatory memorandum which was issued with the Bill. The Bill was then read a second time on the voices, and the House went into committee.

Mr. Craigie asked the Premier if lie iwould have an opportunity of moving the amendment of which he had given notice.

Mr. Massey said he knew the spirit in which the amendment was moved. He knew Mr. Craigie was not hostile to the Bill or to the Government, he was simply after information, and he saw no reason why he should not be. He therefore suggested that if they came back to the next session they should put their heads together and set up a Parliamentary committee to go into the whole question. Mr. Craigie asked if the Premier could not see his way to set up a committee tin's session and let the committee do its work during the rece'ss. so that the information would be available for the House when they met again. Mr. Massey gently deprecated the suggestion, and assured Mr. Craigie that he could rely on the Government to do the right thing." Mr. Craigie accepted this. .:•■-

THE BILL PASSED. Mr. H. E. Holland (Labor Leader) then said he proposed to divide the House on the first clause. His reason for doing so was his desire to affirm the desirability of establishing a State Bank. On a division the clause was carried by 57 votes to 8. The Premier moved a. new clause giv-. ing the Public Trustee to hold an unlimited number of shares in the bank. Mr. Wilford asked if this wrjild give the Public Trustee power to buy up shares. Mr. Massey explained that he would have power to buy up shares with money held in trust. Mr. Wilford: Then it does not go far enough. The Public Trust should have power to invest some of its large profits in Bank of New Zealand shares, and so help to '•'democratise" the institution. The amendment was agreed to, and the Bill was read a third time and passed.