Sale to the Bank of New Zealand.

As early as 1888 overtures were made to me for an amalgamation of the Colonial Bank with the Bank of New Zealand, and these were repeated in subsequent years, but were always declined, as I was perfectly satisfied with the position and prospects of the Colonial Bank, and that the proposals made were unsatisfactory. One cause of these overtures was the fact the Colonial Bank was the chief competitor of the Bank of New Zealand in every part of the latter's business. However, in 1894, after the guarantee by Parliament of £2,000,000 to the Bank of New Zealand, against which I strongly protested, I saw that in the future the Colonial Bank would have to fight an institution backed by the funds of the colony and supported by the Government. Moreover, the outlook was uncertain. There was no saying whether the panic in Australia might not extend to New Zealand, and I thought it would be a happy solution of a difficult and anxious situation if some arrangement could be made, the effect of which would be to put the Bank of New Zealand in a sound position, and no arrangement could be really satisfactory unless it ensured an increased earning power to that bank, an element which the acquisition of the Colonial Bank business supplied. Negotiations took place which resulted in the conditions of amalgamation submitted to the shareholders of the Colonial Bank on the 26th day of September, 1894. I will not set these out in detail. In effect, the shareholders in the Colonial Bank were to be freed from further liability and receive £400,000 fully paid-up shares in the Bank of New Zealand. The assets and liabilities of the Colonial Bank to be taken over as therein set out. The Government having sought to impose additional conditions, which were deemed objectionable by the directors of the Colonial Bank, the directors being at that time perfectly satisfied as to the soundness and stability of the Colonial Bank, apart from the danger which threatened it through the Bank of New Zealand, at once put an end to the negotiations.

The reasons which led me with some reluctance to resume the negotiations in 1896 which resulted in the sale of the bank were as follow:—The condition of the Bank of New Zealand, disclosed on their application to Parliament for assistance, caused a large number of the shareholders in the Colonial Bank to take fright. Shareholders were constantly coming to me and to other directors and expressing their anxiety about the liability on their shares, and seeing the widespread suffering and ruin occasioned by the calls in the eco ustracted banks in Australia and the Bank of New Zealand one cannot blame them for being anxious. The fears of shareholders brought home to me in private interviews were publicly manifested by arge numbers of shares being placed on the market, so that the price of shares quickly fell to as low as 13s. This public manifestation of want of confidence in the bank on the part of their own shareholders was a cause of danger gravely page 12 threatening the safety of the institution. In addition, there was the run on the Bank of New Zealand, which would have wrecked that bank, notwithstanding the £2,000,000 provided the previous year, and which was only stopped by the Government bringing into force the Note Issue Act. I was also a member of the committee on the Bank of New Zealand, and knew of the losses in that institution, and that it would still be necessary to write off over two millions and a quarter. The Colonial Bank were also feeling the effect of this want of confidence in the withdrawal of deposits. Further, as I have said, after Mr Vigors's report of 31st May, 1895, it was apparent that many of the accounts in the bank had been weakened by the calling in of advances to meet the large withdrawals of deposits, and the earning power of the bank was being lessened. These were all strong reasons for selling if an advantageous sale could be made, but even these alone could probably not have induced me to resume negotations without the still stronger reason—viz., the state of the Bank of New Zealand. My opinion was, and still is, that, however much the Government helped the Bank of New Zealand, they would never he right with their earning power in the impaired condition that institution then was, and, until the Bank of New Zealand was put right, the banking atmosphere would never be settled. I thought, therefore, that if the Colonial Hank declined the overtures to purchase made in 1895. and elected to continue on their own account, we should have to meet our own shareholders and take whatever steps were considered necessary to put the bank right. If after this, in 1896 or any subsequent year, the Bank of New Zealand had to come to Parliament again, the former danger would he revived, and the Colonial Sank, after all the pains they had taken, might be forced to close their doors and go into liquidation. Rather than run this risk I determined to use my best efforts to bring about a sale, and bring this wearing and anxious state of matters to a close. When the negotiations for the sale commenced the state of the bank was believed by the directors to be that evidenced by Mr Vigers's report of 31st May, 1895, and taking that report as correct, and allowing all the items enumerated in it as bad and doubtful to be quite bad, the bank ought to have sold so as to return to the shareholders £2 10s 11d per share, less the cost of liquidation. Unfortunately, or perhaps I should say fortunately, the state of the Ward account was discovered while the negotiations were in progress. The discovery was unfortunate, as it weakened the position of the directors in selling. A course which before was deemed prudent had now become almost essential; for if, on the state of this account being made public, a panic had set in, there was no knowing what might not have happened. By the terms of sale each asset was bought separately, as it were. The Bank of New Zealand took over what was considered good, rejected what they considered bad, and placed what they considered ample reserves against what they considered doubtful, with this important a idition added: that the shareholders in the Colonial Bank were to be free of all further liability on their shares. The officers of the Bank of New Zealand had long before the sale, access to all the records of the Colonial Bank, and knew of everything that the directors and officers of the Colonial Bank knew. There was no concealment of any [unclear: ki] indeed, all the details of the bank's business [unclear: w] in the hands of the Government auditor [unclear: of] Bank of New Zealand. It was fortunate [unclear: that] state of the Ward account was ascertained [unclear: be] the sale was complete, and that this also [unclear: was] closed before the sale was completed, as [unclear: if] discovery had been made after-wards I [unclear: do] know what additional accusations might not [unclear: h] been made.

I will venture one other re mark only [unclear: un] this head Why the Bank of New [unclear: Zealand] quired additional earning power and [unclear: why] purchase of the Colonial Bank was [unclear: advantage] to that institution are difficult question, [unclear: and] answers to them involve considerable [unclear: commet] experience and a good deal of lahorious [unclear: invest] tion, and those who have not such experience those who do not care to undertake such [unclear: inva] gations must either accept the finding of [unclear: th] qualified to speak or retain their own [unclear: opi] without investigation. The subject has [unclear: been] quired into by a committee of the [unclear: Legisl] Council and by a committee of the House. [unclear: I] out in Appendix C extracts from the [unclear: respec] reports showing the conclusions arrived at committees. It has been common to talk [unclear: of] transaction as the sale of an insolvent The Colouial Bank never were insolvent; all [unclear: ti] creditors will be paid in full, and so far [unclear: from] Bank of New Zealand having made a bad [unclear: bar] they have made an excellent bargain, and that will, I hope, finally and forever put [unclear: an] to the overshadowing calamity which for years has been impending over the colony [unclear: the] that institution. The best evidence as to [unclear: whe] toe bargain was a bad one or a good one [unclear: for] purchasing bank is that of their official, staff. I therefore set out in Appendix C [unclear: ext] from public documents showing their [unclear: opinion]