# The Life and Work of Richard John Seddon/Chapter 13

Chapter XIII.
A Banking Crisis.
In the second year of his Premiership, Mr. Seddon and his Ministry were tried as Premier and Ministry had never been tried in the colonies before.
Everything had gone well with him. There had been no hitch in his administration or his legislation. The people had said unmistakably that they desired him and no one else as their leader. He was at the head of the strongest and most united party on record. He was surrounded by clever men, upon whom he could rely for support with the utmost confidence. Adversity seemed to be turned into good fortune, and the plans of his opponents were frustrated so that their schemes helped him to gain greater popularity and become more steadily fixed in his position.
In 1894, however, it became evident that there was great trouble ahead, and that he would be called upon to meet an extraordinary crisis. Suddenly, and without any warning of the heaviness of the responsibility that was to be placed upon his shoulders, he was asked to take his reputation in his hands and face a danger that appalled even his stout heart. The Government was called upon to decide in a few hours whether it would save the Bank of New Zealand or let the institution fall and carry with it the fortunes of thousands of colonists and the financial welfare of the colony.
The first hint the public received that the bank’s affairs were not satisfactory was in October, 1889. There had been some idea abroad before that time that the bank was making heavy losses. It had advanced money on landed and other properties when the colony was enjoying its period of inflated prosperity, and when values were high. Then came the depression and the heavy drop in prices, values, businesses, and everything else; and the bank found that property after property and ​business after business was thrown upon its hands, and that in many cases the estimated values were not equal to the values of the securities. It was compelled to take over many kinds of business concerns, and to endeavour to conduct them, very often in an unbusinesslike and unsatisfactory manner.
It had a mass of securities, which had been accepted in support of weak accounts. The values of these securities had fallen greatly. Many accounts were in liquidation, and the cover for them was very inadequate. These involved losses which the directors had not faced in 1888. The losses would have absorbed not only the whole of the bank’s reserve fund, but also nearly one-third of the paid-up capital of the bank as well, amounting to £800,000 in all. In face of this, the bank had for years been paying a dividend that it had no right to pay. Securities were held and accounts kept going in the vain hope of a recovery of the values placed upon them at the time of the inflated prices. On the top of this, there came heavy losses in the bank’s Australian business, brought about by the Australian depression.
Mr. G. Buckley, the President, saw that the institution was drifting on to the shoals; and in 1889 he resigned from his position, stating that he had cause to feel dissatisfied, and that at the first convenient opportunity he would give the reasons that led him to the conclusion he had formed. This announcement, coupled with the rumours that had been afloat for some time, raised the public’s curiosity.
Mr. Buckley’s opportunity came at the annual meeting of shareholders held in October at Auckland, where the bank then had its headquarters. He startled the shareholders and the colony by stating that the balance-sheet was not a correct statement of the assets and liabilities, as there were old losses and deficiencies not provided for. Half the bank’s capital, he said, had been lost. The liabilities were under-estimated by at least £300,000, and he urged that some properties ought to be written down to one-third of the value placed upon them; and even if that was done, the times would have to improve very greatly to enable the bank to sell the properties at the reduced values.
Mr. Buckley’s statements were the principal topic of discussion in the colony next day, when they were telegraphed to the ​newspapers. His action was heartily condemned at the meeting of shareholders and in financial circles. Shareholders complained that the bank had been so discredited that its existence was imperilled. Hardly anyone had a good word to say for Mr. Buckley. The directors had suggested that the bank’s headquarters should be removed to London, and the general opinion was that Mr. Buckley’s speech had helped that movement, as the aid of a strong London Board and the further assistance of English shareholders were required to rehabilitate the bank. Besides that, the Auckland directors had frequently been charged with mismanagement, and it was thought that it would be better to free the institution from the local influences of any portion of the colony, and from the temptation of mixing bank affairs with politics. There was a belief that local pressure in Auckland had had an injurious effect and was a real danger. Most colonists, however, refused to take Mr. Buckley’s statements very seriously. They did not accept his figures, and the shareholders passed a motion stating that the information given by the directors was sufficiently full.
A sensation was caused in London as soon as the report of the meeting reached that city. The Financial Times denounced the deception that had been practised. Mr. Buckley’s speech created a panic among the depositors. Shares fell to the extent of £2 each, and in London it was suggested that it was the duty of the Government to interpose. All this helped to raise public feeling in the colony against Mr. Buckley, who was accused of being a sensationalist. He was pointed to as a man who was doing immense harm to the colony, and for a time he was the most unpopular person in New Zealand.
In 1893 Sir Joseph Ward noticed that the reserve in coin at the bank was below the legal limit, and he called the attention of the bank’s officers to the fact. The general manager maintained that the law had been complied with. Sir Joseph did not altogether accept that view of the case, but as the circumstances were critical at the time, on account of the Australian depression, he did not think it advisable to insist that the coin reserve should be increased. He contented himself with giving instructions that the bank’s position should be carefully watched.
​Nothing further transpired until Monday, June 25th, when there was disclosed to Sir Joseph Ward, for the first time, the fact that the bank was in such a serious position that the State alone could save it from bankruptcy, and that unless steps were taken at once, its career would be suddenly stopped.
The information was imparted at a private interview by Mr. John Murray, the bank’s representative, and, at his request, Sir Joseph placed the whole position, as far as it had been disclosed to him, before Mr. Seddon.
Both Sir Joseph and Mr. Seddon realised at once the gravity of the crisis. They discussed the matter for hours, and endeavoured to look at it from all points. They admitted, without any cavilling, that the bank had to be saved if it could be saved; but they also stood convinced that it was not the function of the Government to sacrifice the country to any extent whatever for the sake of an institution which was conducted in the interests of private persons, and which had brought at least a large proportion of its trouble upon itself by its bad management.
On the day following the disclosures to Sir Joseph, Mr. Seddon and he had a conference with Mr. Murray, who told the Ministers in plain language that, unless the Government came to the rescue, the bank would have to close its doors in a few days. He admitted that, in spite of the sound position apparently held by the bank, as disclosed by the balance-sheet, there was absolutely no hope of its being able to carry on beyond the following Monday. The bank, owing, it claimed, to low prices, bad seasons, and other causes, was quite unable to declare a dividend to shareholders at the approaching annual meeting, and the result would be that the bank must close. Even then, in spite of strenuous efforts to collect resources, the bank’s executive found the utmost difficulty in maintaining the gold reserve prescribed by law. The very low price of the bank shares in the market was itself evidence of distrust that might at any moment develop into a panic.
No one doubted that the closing of the bank would be a calamity. The institution was bound up with the colony in many ways. The shadow of the bank was over the whole land. ​Its ramifications extended into all corners and affected all classes. Within New Zealand there were 1300 shareholders, liable for nearly three-quarters of a million of money. The bank had 95 branches or agencies in the colony, and they dealt with 25,000 accounts. The bank held the money of 35,000 separate depositors, whose deposits amounted to nearly four and a half millions sterling. Its discount accounts represented traders’ acceptances, equal to £600,000. It had granted thousands of overdrafts, and the Government was its creditor to the extent of £825,000.
There were many of its clients who could have found accommodation elsewhere, but they belonged to the better-off classes. If the bank had closed, men who were doing well in business, but were not rich, would have been completely ruined; many promising enterprises would have been crushed; and the colony’s industries would have suffered to such an extent that years would have passed before they began to recover. The locking up of the money of 35,000 depositors would have caused dislocation of business and loss. Among the depositors was the Auckland Savings Bank, with about £60,000 at its credit in the bank. The trouble would not have stopped with the Bank of New Zealand, and a banking crisis, on the scale of the financial disasters in Australia, was impending.
The depression had passed away, but the colony still felt its effects, and in some directions felt them very severely. The fall of a large banking institution would have precipitated the colony into the depression again. The public revenue would have been seriously affected, the unemployed would have become clamorous, and the colonists, thoroughly disheartened by this fresh trouble, would have needed all their courage to meet the emergency.
There had been whispers among financiers that something might happen. Nothing had been said openly, but those who had opportunities for knowing, and who observed the signs, were alive to the fact that the bank was in an embarrassed position. There were very few, however, who believed that it was actually contemplating closing its doors, and the revelations came to Mr. Seddon and Sir Joseph Ward like a lightning flash.
​As far as the bank was concerned, two things had to be done to avert the crash. One was that the bank should be placed in possession of increased capital resources, partly to fortify its cash reserves, and partly to enable it to extend to its customers the accommodation they required in the second half of the year in anticipation of their wool-clips and crops of the ensuing season; and the second was that the total of the increased capital resources should be sufficient to maintain confidence in the bank’s stability, even if no dividend was paid for a time on its existing capital.
The proposal made by the bank was that the Government should give a guarantee to an issue of £2,000,000 in preference shares for ten years, the issue to be replaced by a fresh issue of ordinary shares or otherwise at the end of that time, and the State to be then relieved of its guarantee. As a cover to safeguard the State from loss, there was the bank’s paid-up capital, amounting to £900,000, and a reserve liability of £1,500,000, making a total of £2,400,000. It was proposed that one of the two millions guaranteed should be placed at the disposal of the bank in its ordinary business, and that the other million should be held in reserve and invested only with the approval of the Colonial Treasurer. The bank’s officers believed that, apart from preventing a terrible misfortune to the colony, the arrangements suggested would have the effect of placing and maintaining the whole banking business of the colony on a sound basis.
Four days after this proposal was submitted to the Government, Mr. Seddon was informed that since the bank’s balance-sheet had been issued, the position had become impaired and seriously compromised.
There could be no doubt of the gravity of the position as seen by Mr. Murray. As a banker of forty-five years’ standing, thirty of which he had spent in New Zealand, he gave Mr. Seddon his assurance that the occasion was one of public urgency. He was absolutely convinced that if his proposal was adopted the State would not lose a penny, and it would avert a great loss to itself as well as to the community, while the banking affairs of the colony would be placed on an improved footing. “If the Government finally determines to go on with the ​measure,” he said with significance, “it should be put through to-day.”
The Cabinet met and discussed the position, and Mr. Murray attended the meeting and explained the whole position. The same day, Mr. Seddon conferred with Sir William Russell, Leader of the Opposition, Sir Robert Stout, and Mr. Mitchelson; and Sir Joseph Ward saw the Hon. G. McLean (a member of the Legislative Council, and an authority on banking matters), Sir Robert Stout, and Mr. H. D. Bell, one of the members for Wellington. The Government was led to take this action because it felt that all party feeling should be sunk, and that the Opposition had as much interest as the Government in saving the bank and the colony.
The Government took what steps could be taken in so short a time to ascertain the position in all its bearings, and to see how far the bank’s proposal would be likely to lead the State. Mr. Seddon and Sir Joseph tried to reduce the colony’s responsibility in various directions. They thought out several schemes that would lead to a settlement of the difficulty. They were anxious to get more time, but it was too late, and the more the Government delayed the worse the position became. Some inkling of the trouble had gone abroad, and it was seen that if nothing was done on Friday night, there would be a run on the bank on Saturday morning, and the inevitable panic on Monday.
It was then Friday, and the bank had said in terms that could not be doubted that it would not be able to carry on without assistance beyond Monday. On Friday afternoon, a Bill was rapidly but carefully drafted, ready to be presented to the House in the evening.
The rumour that went about in political circles when it became known that some specially important legislation was pending was that a no-confidence motion would be moved against the Government. Then it was stated that the Legislative Council had made preparations for the unusual course of holding an evening sitting, and it gradually became generally known that Ministers, in conjunction with Sir Robert Stout, who was consulted professionally, were drafting a Bill to save an ​important financial institution. There was only one institution that could fall back upon the State for that kind of aid, and it was realised that the Bank of New Zealand had reached such straits that unless it was saved the colony would suffer one of the severest blows adversity had dealt it.
As the House was about to rise for the dinner adjournment, Sir Joseph Ward gave formal notice that at 7.30 he would introduce an important banking measure. The news spread through Wellington with remarkable rapidity. When the doors leading to the public galleries of the House were thrown open, there was a rush for seats. Large numbers could not gain admittance, and stood outside waiting for the verbal reports of the proceedings, which were passed from one person to another.
At 7.30 Sir Joseph moved that half-an-hour’s adjournment should be allowed in order that the arrangements for bringing down the Bill should be completed. A few minutes later copies of the Bank of New Zealand Share Guarantee Bill were in the hands of members and were being read eagerly. Delays took place before the Bill was finally introduced, reported to the Speaker, and read the first time, and it was 9 o’clock before Sir Joseph rose to move the second reading.
Speaking on behalf of the Government, he said that the responsibility was fully realised, and the Bill would not have been submitted had not necessity demanded prompt action. After reviewing the position, and giving it mature consideration, the Government had come to the conclusion that it was absolutely essential in the public interest that effective action should be taken, and that it should be taken without the slightest delay. He placed special emphasis on the need there was for action in the interests of the public, because the Government was aware that no person, and no company, no matter how important it was, was entitled to assistance at the expense of the tax-payers.
The bank was not in good favour with a section of the public. Sir Joseph knew that, and he made a point of asking members to dismiss from their recollection all prepossessions that had found an origin in the bank’s past career, in its management, or in its connections, unless recollections of that ​nature were likely to create an incentive to them to agree to the measure the Government had brought down for the sole purpose of preventing calamity overtaking the colony.
From a more selfish point of view, he explained that the Government’s banking business was with the Bank of New Zealand. In carrying on the colony’s business, it was necessary to hold large balances from time to time. The Government’s balances at that time happened to be lower than usual, but in spite of that fact, and independent of some accounts which local public bodies held in the bank, the institution owed the colony £885,000, represented by actual deposits and drafts in the Bank’s possession. In addition to that, the London deposits amounted to £1,500,000. It was evident, therefore, that if anything happened to the bank, the Government, as well as the people individually, would be heavy losers.
The bank, in fact, was virtually a State institution, and the Government had to decide in a moment whether the position should continue until the disaster came. “We were faced with two positions,” Sir Joseph explained; “we had to elect to go either to the right or to the left. The left would mean disaster; we have, therefore, decided to go to the right, and we have taken the House into our confidence. We are responsible for the proposals we submit to the House for ratification, and after that the House is responsible to the people of the colony. I have no hesitation in saying that he would be a bold man, who, in the circumstances, and with the information we possess, hesitates to take what I feel is a strong course, and is the only course open to the Government.”
Mr. Seddon also expressed his sense of the responsibility thrown upon him and upon the Government and the House. He saw no possible way of meeting the difficulty except by passing the Bill. The cloud that had been seen coming up, he said, was over the colony, and it was the duty of the Legislature to dispel it. A suggestion had been made that the Bill should be referred to a committee before it was dealt with by the House, but Mr. Seddon urged members not to cause delay. The Bill must be passed that night. The Government had not taken up its responsibility without careful consideration, and if the ​House refused to accept the Bill the responsibility would rest with it.
Sir William Russell endeavoured to suppress the party feeling of his supporters, saying that there should be no attempt to gain party advantages or to discuss the question in any manner but the gravest and most impartial that could be adopted. He did not like being called upon to come to a decision at a moment’s notice, and he suggested that the Bill should be considered by a Special Committee, but he saw that the crisis called for determined action or none at all, and he thought it was less dangerous to meet the liability than to face the appalling disaster which would take place if Parliament did not come to the rescue. His principal objection to the course proposed was that it went a long way in the direction of a State Bank, of which he was a strong opponent, but he waived that objection, and offered no opposition to the passage of the Bill.
One member of the Opposition suggested that the House should continue to sit until the morning in order that a committee could inquire into the position, but Sir Joseph said that if the Bill was delayed until the morning, the House would not be asked to put it through at all. The events that took place a few hours later show that his surmise was correct.
The second reading was carried by 52 votes to 9, and the Bill went into committee. The House refused to adjourn for supper. By 11.30 the Bill was through committee, and at midnight it was sent on to the Legislative Council, which had been sitting in readiness for the measure. The Council was more deliberative than the House in its discussion. It appointed a Select Committee, which briefly took the evidence of Mr. Seddon, Sir Joseph Ward, and Mr. Murray. Having satisfied itself as far as it was able to do so, it recommended that the Bill should be allowed to pass.
At 4 o’clock on Saturday morning, the Bill had passed both branches of the Legislature. Shortly afterwards it received the assent of the Governor, who had also been waiting in order that there should be no delay.
​Mr. Seddon was the first to congratulate Parliament and the country. “This Parliament,” he said, “has been equal to the occasion, and that the colony has been saved from disaster. I feel sure that what we have done is in the interests of the country, and that the results will be beneficial to the people. The colony may also congratulate itself on what has been done.”
On Saturday morning, therefore, the colony was made aware of the fact that in a few hours the Government had arrested a crisis, which had been dealt with before the people generally knew what was happening. Immediately all alarm passed away. People gathered round the doors of some of the bank’s important agencies, and there were withdrawals, but they were chiefly from the accounts of small depositors. The promptitude with which the demands were met reassured even the most timid, some of whom had made their way into the premises to ask for gold for bank notes.
The Press of the colony united in praising the courage displayed by Mr. Seddon and Sir Joseph Ward. One of their bitterest critics said that the colony, as well as the bank, owed them a debt of gratitude for their promptitude and boldness in facing the emergency when they were suddenly called upon to do so. Newspapers that had severely criticised Mr. Seddon and his colleagues without stint praised them for the first time in a manner that left no doubt as to the appreciation with which the courageous action was received.
The Banking Act, as it stands on the Statute Book, provides for the increase of the bank’s capital by the issue of shares to an amount up to £2,000,000, guaranteed by the State. The shares were to be called in at the end of ten years, and cancelled on payment of the principal sum with the accrued dividend. The rate of dividend was not to exceed 4 per cent. The guaranteed shares were known as “A” shares, and were to have preference over all ordinary shares in regard to both capital and dividend. The issue of the preferential shares was secured on a liability of all the shareholders in the bank. Promises were made that if any money was payable under the guarantee, all the assets and other property of the bank would stand as ​security for the advances, and, if the money owing, with the interest at 4 per cent., was not paid, the Colonial Treasurer was authorised to appoint a receiver, who would act as a liquidator. While these shares had currency, no dividend was to be paid without the consent of the Colonial Treasurer. One million of the two millions guaranteed was to be at the bank’s disposal for use in its ordinary business, and the remainder was to be invested under the approval of the Colonial Treasurer. Until the guaranteed shares were called in and cancelled no dividend was to be paid to ordinary shareholders without the consent of the Colonial Treasurer, who was authorised to satisfy himself that any proposed dividend would not unduly affect the security of the colony in connection with the guarantee. The Colonial Treasurer was authorised to instruct the bank to call up £500,000, which was one-half of the reserve capital, within twelve months. The Act stopped the movement to remove the headquarters of the bank to London, and provided that they should be in Wellington, and the Government was empowered to appoint a president of the bank, and an auditor for the business outside the United Kingdom, while the Agent-General appointed an auditor in the United Kingdom. By an amendment of the Act in 1894, Parliament consented to the guaranteed shares being issued in the form of negotiable stock.
While the Goverment’s action was the subject of conversation, and there was much praise, Sir Joseph Ward found that there were other circumstances surrounding the bank’s affairs, and they were not of a satisfactory nature.
The Bank of New Zealand Estates Company was very closely associated with the affairs of the bank itself. The company owned large areas of land. In many places this land was suitable for closer settlement, but it was not worked to the best advantage. As the company was closely connected with the bank, the Government came to the conclusion that it should be dealt with, and that the two institutions should be separated, or, at any rate, that their relationship should be modified. At the same time, it felt that hasty action might do more harm than good. It therefore decided that a joint committee of both Houses should be set up to inquire into the position of the two ​institutions, and to ascertain how they could best be separated, and how the earning power of the bank could be increased.
The Estates Company had been formed five years previously to take over the bank’s “globo assets,” which consisted of real estate, trading concerns, and other properties that had fallen into the bank’s hands. Events showed that it would have been more prudent for the bank not to have formed the Estates Company, but to have called up the reserve liability of the shareholders, and in this way to provide the bank with the necessary working capital. The bank was practically the only shareholder in the company, and the separate existence of the company was purely a nominal matter, existing only in name. The shares of the company, appearing on the bank’s balance-sheets, gave rise to misleading impressions, and allowed dividends to be paid when the bank was actually going from bad to worse every year. In the years before 1890, owing to the fall in agricultural produce, wool, and frozen meat, the company’s properties steadily depreciated in value until they were no longer able to pay interest on the debentures that had been created. They therefore became a heavy burden on the bank, and in March, 1895, the combined balance-sheets of the Estates Company and of the Auckland Agricultural Company, in which the Estates Company held shares, showed a deficiency of no less than £1,764,383.
The investigations of the Parliamentary Committee showed that the bank, the Estates Company, and the Agricultural Company, although nominally three separate institutions, were one. The division was in name only; all the shares in the Estates Company were held by the bank, and the Estates Company held interest in the Agricultural Company.
The Committee had a difficult task in devising a way of separation. It had not only to separate the institutions, but it also had to safeguard the colony against losses, and, if possible, make it unnecessary for further applications to be made to Parliament. The Committee recommended that the whole of the freeholds, leaseholds, country runs or stations, stock and implements held in New Zealand by the three institutions should be sold to an Assets Realisation Board. It also recommended that £500,000 of the uncalled reserve liability of ​the bank should be called up, and that the Government should subscribe £500,000 for preferential shares, giving the bank a clear capital of £1,000,000. In addition to that, the bank was to have the whole of the State guaranteed stock to the amount of £2,000,000 for ordinary use.
First class credit was necessary to insure the confidence of depositors and enable the bank to conduct the vast business connected with the trade and industry of the colony. The incubus of the Estates Company, which, under the existing conditions, had to appear on the bank’s balance-sheet, and was a fit subject for attack and for injurious comments of opposing banking institutions inside and outside of the colony, had to be removed. It was important that the bank with which the Government dealt should have the confidence of the discount houses in London.
With the increased burdens thrown upon the bank by the two millions of additional stock and the readjustment of capital, it was necessary that the bank should have a very large addition to its earning power. The only way to do that so as to enable it to make enough profits to pay its way and sustain its credit was by purchasing the business of the Colonial Bank. Arrangements for the amalgamation of the two banks had already been entered into, but they had been dropped. Shortly after the banking legislation was passed in 1894, negotiations for the amalgamation of these banks began in earnest. Late in 1894, an agreement was arrived at. It was proposed to make an amalgamation, but not to purchase the Colonial Bank by the Bank of New Zealand.
One night in September this agreement was forwarded to Sir Joseph Ward. The next day he wrote a long letter to Mr. Seddon, in which he showed the difficulties he had to deal with and the trying time he had gone through. This letter states:—
“Since the colony guaranteed two millions to the Bank of New Zealand, the whole matter has given me the greatest concern and anxiety, not so much on account of the guarantee of the bank proper, as on account of the position of the Estates Company. Attached to the bank as it now is, it will, in my opinion, render it impossible for the bank to extricate itself, even with the colony’s guarantee, and must, if not dealt with now, call in the future for further substantial aid from the colony. If the company is left under the same control as ​the bank itself, the duties of the president, auditor, and Colonial Treasurer will be greatly interfered with, and, indeed, I may add that in my humble opinion the Colonial Treasurer’s life would not be worth living. To insure himself against the possibilities of disaster in the guarding of the two millions, he would require to know almost every detail of the way in which the two concerns, the bank and the company, were operated upon, otherwise the possibility of a loss in either being transferred or even absorbed by the other would be easy, but would be exceedingly difficult to detect. No president or treasurer would feel safe in assenting to the investment of the funds guaranteed by the State.”
He drew up a scheme for an amalgamation of the banks and for the separation of the company, but the banks would not accept the proposals he made. In 1895, therefore, Mr. Seddon and his colleagues were called upon to introduce further banking legislation. The danger was past now and the crisis was over, and the Government’s critics gave themselves plenty of leisure to criticise the Government’s action. The debates were of a stirring nature, and led to much delay in getting other measures affecting the bank through Parliament. In that year, however, the whole of the proceeds of the call of £500,000 estimated at £450,000, together with the original paid-up capital, amounting to £900,000, was written off, the full extent of the bank’s position having been accurately gauged. Besides that, the Government rendered itself liable for another £500,000 in shares, and a similar sum was again called up from the reserve liability. An Assets Realisation Board was established to purchase all the assets of the Estates Company and the Auckland Agricultural Company for the sum of £2,731,706, which was the estimated value of the properties in 1895. Promises were made for paying the purchase money in debentures issued by the Assets Board, and any deficiency was guaranteed by the Government, which secured itself against loss on account of the guarantee, and if there was a deficiency the Colonial Treasurer was empowered to appoint a receiver, who would have the powers of a liquidator. The same Act, in accordance with the report of the Committee, gave the Bank of New Zealand power to purchase the property of the Colonial Bank. The Estates Company sold its properties, the Colonial Bank was purchased, and the Bank of New Zealand, recently saved from disaster, began an entirely new career, which has been favourable to itself, satisfactory to the shareholders, and creditable to the colony.
​The bank went on its way for three years in full enjoyment of a State guarantee, and it increased its business year by year, so that it was not necessary to appeal to the Government again. In 1898, Parliament abolished the position of president, with the right of veto, and gave the Board of Directors a new constitution. The Board was now to consist of six members instead of five, four to be appointed by the Government and two to be elected by the shareholders, the State thus having the preponderance of voting power.
After passing through another period of freedom from legislation, the bank was brought before Parliament once more in 1903. The time when the £2,000,000 worth of State guaranteed stock would reach maturity was approaching. It would expire in July of the following year. It was generally known then that the bank had been doing an excellent business. The State, of course, had not been called upon to make good its guarantee, and had not incurred any actual expenditure. The bank was in a position to redeem the whole of the guaranteed stock issued under the Act that was rushed through Parliament on the night of June 29th, 1894. The bank also repurchased the £500,000 worth of preferred shares issued in 1895, which were cancelled by the new Act, and in their place the Government purchased 75,000 preference shares, fully paid-up, representing £500,000 new capital. These shares carry a preferential dividend of 5 per cent. and a right to share in profits with other subscribers up to 10 per cent., which is the limit of dividend that can be paid upon them. They give the State a permanent interest in the bank’s affairs.
The transaction has been more than satisfactory from the start to the finish. The results have been magnificent. The Government saved the bank from bankruptcy, the colony from financial depression, and many firms and individuals from disaster. In doing that, the State has not been called upon to pay one penny, and it holds £500,000 worth of shares, which are now worth more than £1,000,000, and which may be looked upon as some return for the colony’s promptness and courage in coming to the bank’s rescue.
​The institution is practically now a State-bank in all but name, with some restrictions. Its history since the State came to its assistance is an amazing one. The bare figures of its balance-sheets show the extraordinary progress it has made. Its net profits during the past five years have been:—
| 1902 | ... | ... | ... | ... | 172,501 |
| 1903 | ... | ... | ... | ... | 195,590 |
| 1904 | ... | ... | ... | ... | 200,303 |
| 1905 | ... | ... | ... | ... | 253,930 |
| 1906 | ... | ... | ... | ... | 274,329 |
| | Total net profits in five years | Total net profits in five years | Total net profits in five years | Total net profits in five years | £1,096,653 |
All through the banking legislation, which marks a distinct period in parliamentary proceedings in New Zealand, there ran a demand for the establishment of a State-bank pure and simple. The State-bank, like the Referendum and the Initiative, the women’s franchise, the Elective Executive, and several other questions upon which there is much difference of opinion, has been with the colony for a long time. It has its friends and its enemies. It was on account of the long way the colony had to go towards a State-bank that a great deal of the opposition was offered to the passage of the emergency measure on June 29th, 1894. It was on that very account, on the other hand, that the measure received a great deal of its support. The State-bank question, in fact, has been quite inseparable from the banking legislation, and as the State became more closely connected with the affairs of the Bank of New Zealand, the friends of the State-bank movement rejoiced and its enemies grieved.
When Mr. Seddon submitted the new Bill in 1903, almost irresistible pressure was brought to bear upon him to have the connection between the State and the bank severed. Mr. Seddon, however, had determined that that would never be done with his consent, and he resisted all attempts in that direction. When he was taking up this attitude in 1903, his hands were strengthened by a round-robin, signed by 29 members of the Legislature, and forwarded to him by Mr. H. G. Ell, one of the members for Christchurch City, and one of the most enthusiastic supporters of a State bank. This document is as follows:—
To the Right Honourable the Premier and Members of the Cabinet.
Gentlemen,—
We, the undersigned, hereby place before you our opinion respecting the legislation dealing with the Bank of New Zealand, and beg to inform you that we will endeavour to have these views embodied in legislation:—
    (1.) That, as State control has proved such a success, the State should not cease its control, and should continue to be represented on the Board of Directors in the same proportion as before.
    (2.) That as the Bank has received, and is still receiving, material assistance from the State, besides enjoying a monopoly of State and local government business, we consider that the State should share in the profits in return for the monopoly of public business.
    (3.) That the bank should not be placed in a position to terminate its connection with the State.
A reply was received as follows:—
Prime Minister’s Office, Wellington,
October 15th, 1903.
Sir,—I have the honour to acknowledge receipt of the letter signed by yourself and 28 other members of Parliament addressed to members of the Cabinet, and dated September 28th, intimating your opinions in respect to legislation dealing with the Bank of New Zealand. In reply I have to say that the matter is at present receiving the consideration of the Government. I beg to point out that the suggestions made are on the lines which, in several speeches delivered by me prior to the session, I submitted as being reasonable.
I have the honour to be
Your obedient servant,
R. J. SEDDON.
Mr. Seddon was never opposed to the principle of a State-bank. As a private member he frequently spoke in support of the proposal. He knew exactly what it meant and what it involved, and he always believed that it was something more than a fad. In 1889, when he was emerging from his parochial days, he felt that there was “something in it.” It always seemed to him, he said once, that there was a good deal more in it than members seemed to think. He believed then, five years before he was called upon to virtually establish a State-bank, that the colony was drifting in that direction, owing to the Government converting its trust funds into “trading funds.” He thought that the State might issue debentures bearing a certain interest, ​and that the people of the colony would take those debentures up and pay the interest, feeling that they would be quite safe in having the security of the colony. That course seemed to him better than going to the extreme length of establishing a State-bank. He was in favour of the State issuing debentures in the colony at 5 per cent., and waiting to see what the result would be. He pointed out that if a State-bank was established in New Zealand it would have the goldfields as a field for its operations. In making this proposal, he was still thinking of the miners, who would get an increased price for their gold. Gold in most places in the South Island was worth £4 3s. 9d. or £4 4s. an ounce. The miners received from the associated banks only £3 16s. “That is why I support a State-bank,” he said in explanation.
It is not likely that the agitation for a complete State-bank will cease. The supporters of the movement, who are fairly strong in the colony, believe that they can see the goal before them. They use the history of the Bank of New Zealand as an argument. They say that their next step will be to make that bank the sole issuer of notes, a privilege which is possessed by the Bank of France and other large banking institutions. At present, the Government cannot purchase shares in the Bank of New Zealand except by appropriation. There is no machinery for the purchase of the bank at present, and they will try to induce Parliament to supply this machinery.