CONIPANY MEETING

MIDLAND BANK LIMITED

STATEMENT BY THE CHAIRMAN, THE RIGHT HON. R. McKENNA

Is view of the circumstances in which the annual meeting of share- holders is to be held, on January 30th, 1941, the chairman does not propose to follow the custom of delivering a speech. In place thereof a statement, summarised below, has been circulated to shareholders. Our first concern at this moment is the war. No less than 2,500 of our men are now serving in the Navy, Army and Air Force. Twenty-seven, alas, have lost their lives, and their memory will be held in honour by us all ; three are missing. Six have received decorations for bravery on active service, and to them we send a special word of congratulation. Large numbers, both men and women, are engaged in various tasks of civil defence. Despite all difficulties—damage to premises and loss of working time through air-raid warnings, travel delays and disturbance of communications— we have been able to maintain essential services to the public with scarcely more than momentary local interruptions.

THE GROWTH OF DEPOSITS

Passing now to a consideration of the balance-sheet, a record figure is shown for current, deposit and other accounts. At £5774 millions there is an increase over the year of £81 millions. Though to a small extent the rise is due to delays in clearing, we have shared to the full in the general monetary expansion corresponding to the enlarged volume of production at a higher level of prices.

The growth of deposits has led to suggeations that the banks are making large and undue profits out of what has been described as "costless credit." But for banks such a thing as costless credit does not exist. The banks pay for all deposits placed with them, partly in interest and partly in service. Of the two forms of payment the cost of service is ordinarily much the greater, and has been substan- tially increased of late by difficulties arising from the war. On the other hand, what the banks have been able to earn on the additional money entrusted to them is readily ascertainable from their balance- sheets. To take our own as an example, if on the liabilities side we show an addition of £8! millions to deposits, we find on the assets side that coin, bank notes and balances at the Bank of England have increased by LW millions ; Treasury bills are up by Lz.4 millions ; and, under a new head, Treasury deposit receipts appear at £674 millions. The total of these three items, k81 millions, is precisely equal to the increase in deposits. The first item, cash, brings us in nothing ; Treasury bills yield t per cent.; and Treasury deposit receipts ti. In fact, on the whole £8' millions we earn rather under per cent.—barely enough to cover the cost to us of the new deposits. With this in mind, it will cause you no surprise that our profit for 1940 is much the same as for the previous year. The reduc- tion shown is due to the higher rate of Income Tax. The bank has incurred no liability for excess profits tax. Of our more profitable assets, advances and investments, advances have declined by no less than £324 millions over the year. Ever since the beginning of the war the trend, apart from short inter- ruptions, has been downward, notwithstanding the rise in prices, employment and production. In part, the fall in advances is a natural consequence of the shrinkage in the volume of many forms of business not essential for the war effort. Meanwhile, the flow of Government payments has been such as to limit the demands made upon the banks by undertakings working directly for war pur- poses; to this extent loans by the banks to the Government have replaced accommodation to private customers. Furthermore, war- time arrangements, especially in the form of official commodity con- trols, have tended to simplify the channels of trade by making them more direct, and have eliminated the services of intermediaries who used to borrow from the banks. The fall in advances is more than offset by the increase in investments, an increase which covers also the decline in trade bills. The new investment has been in 3 per cent. Tar Loan and 24 per cent. National War Bonds.

Finally, we have to record a fall in our liabilities on acceptances d confirmed credits, which is obviously due to the restrictions on verseas trade. Engagements of other kinds are roughly unchanged amount, and the volume of forward exchange transactions has gain declined.

EXPENSES, PROFITS AND ALLOCATIONS

Current expenses have inevitably risen in some directions. We have It it necessary, for example, in view of the higher cost of living, o introduce a system of grants-in-aid, taking the form in part of amity allowances, by way of supplement to the salaries of lower-paid bers of the staff. In order to ensure the maintenance of service customers, moreover, we have had to make special and rather tly transport arrangements for a large number of our staff. Again, tionery is more expensive, and postal charges have been raised. ese, along with war-time precautions, are the principal items which to swell our general expenses.- On the other hand, such opportunities as we have had for making onomies have not been neglected. We have been able to cut down Penses by closing a number of offices where this could be done hour impairing reasonable service to customers, and we have .made further. progress in mechanisation, which has been of tal value at a time when clerical labour is difficult to obtain. The net profit of Li,933,000 for the year, together with the balance f £642,0oo brought forward, gives a total of £2,575,00o for dis-

• Out of this we make, an appropriation of £zso,000 to contin-

gent account for war damage to bank premises. The cost of repair or rebuilding cannot yet be accurately assessed, nor can the scale of the ultimate compensation to be received under the Government's scheme, now in its course through Parliament. Moreover, we cannot foresee what further damage may tie sustained. Consequently, while tha figure we have provided must not be taken as an estimate either of the damage already suffered or of the net charge that may ulti- mately fall upon the bank, we have chosen it as a tentative provision from the profit of the year against the possible extent of our losses.

In addition, we have allocated L250,000 to reserve for future con- tingencies. In disposing of our trading profit we must have regard to the need, imposed upon us by war developments, for making further provision against doubtful advances. Direct war damage to customers' premises and businesses, the evacuation of many areas and restrictions on various branches of trade have put some borrowers in difficulties which are none of their own making. In all such cases of sheer misfortune we have given the utmost assistance and con- sideration; but the circumstances which demand this treatment do not allow us to relax in any way our own standards of judgement as to the prospects for repayment.

There remains to be considered the final dividend for the year. We propose 8 per cent, actual, less tax, which, with the interim divi- dend already paid at the same rate, will absorb L1,455,000. This will make the total dividend for the year the same as for a number of years past. The apparent high rate of 16 per cent. has often given rise to the misconception that banks earn excessive profits. But on what is the dividend paid? It is reckoned on the paid-up capital, which by no means represents the whole capital funds in the bank owned by the shareholder With exceptions insignificant in amount in relation to the present capital, the shares have always been issued at a premium, which has been placed to reserve. Moreover, during the hundred years aid more of the bank's existence savings out of profits have been made, quite small in annual amounts, but large in thc aggregate, which have led to a steady growth of the true capital funds. The yield of something over 4 per cent. on the market value of the paid-up capital more accurately represents the return the share- holder receives on his actual capital in the bank than the dividend rate of 16 per cent.

I cannot pass over without mention the temporary cutting off of our business in the Channel Islands. Happily, in the evacuation no lives were lost among the staff of the bank; moreover, we were able to remove records and valuables in such volume as to safeguard the interests of customers. We look forward to the resumption of our relations with the Islands when happier days return.

I am glad to be able to report that our affiliated institutions, in common with our own bank, have helped to the full in carrying on the essential business of the nation. Particulars of the Belfast Bank- ing Company, the Clydesdale Bank and the North of Scotland Bank all show to how large an extent, relatively to their resources, they are assisting the war effort. The Midland Bank Executor and Trustee Company performs, on a larger scale than ever, services which have become more urgent as the perils of life have increased.

MANAGEMENT AND STAFF

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Surveying the course of our business over the past year, it is evident that the maintenance of unimpaired service to the public could not have been achieved but for the wise control and leader- ship of our chief general manager, supported by his colleagues and head office assistants and by the managers of the branches. In addition, we have enjoyed as always the co-operation of a keen and devoted staff. They have played their part with fortitude and charac- teristic zeal, and I am happy to say that the relations between them and the management continue to be marked by mutual understanding and loyalty. Very helpful co-operative work has been done by the Midland Bank Staff Association, an organisation entirely independent of the management and supported by the contributions of subscribing members. Those who conduct the affairs of the association and represent it in discussions with the management are freely elected by ballot among the members. It must be remembered that bank employees, unlike those in the great majority of occupations, are ordinarily destined to spend the whole of their working career in a single institution ; they have every reason to expect a pension when they reach retiring age ; and they are as deeply interested in the stability of their institution as the shareholders or the customers of the bank. It follows that their interests can best be represented by colleagues who know the inside of their own bank, are provided with confidential data by the management, and can take a view both larger and longer than that of the moment. At all events, it has been found from more than twenty years of experience in our own bank that our system works well, mamtainirg both the strength and efficiency of the bank and the welfare of the staff.

As for the immediate position, it was inevitable that the task of those who carry on the service of the bank should have been ren- dered more difficult by withdrawals into the Forces. The gap thus created has had to be filled largely by recruiting men and women on a temporary basis—no less than 1,100 juniors and 800 women have been taken on to the staff since the war began. The recruits have to be specially trained for their duties if they are to become useful within the short time allowed by present conditions, and to this end we are operating a number of training schools in London and provincial centres.

Whatever the war may have brought in the way of hardship or inconvenience, the course of affairs in our own branch of the national effort has demonstrated the indispensability of banking service in the life of the community. When we remember how that service has been carried on under conditions of .continual danger and strain, and how typical this is of the national effort as a whole, we cannot doubt the ultimate outcome of the struggle. Alike in facing the problems of war and peace, our bank, as a company of men and women loyal to their nation as to their business undertaking, will do its work with all the accumulated strength of training and tradition.