COMPANY MEETING Changes for better or worse in the fertility

of the land, upon which the success of agriculture so much depends, are, as a rule, very gradual in their operation and difficult or impossible to assess accurately from year to year. It is for this reason that a considered judgment of farming problems can only be formed from observations over a number of seasons.

NET PROFIT

The Net Profit of the Bank for the year ended December 31st last, after payment of all charges and making provision for all Bad and Doubtful Debts and for Contingencies, amounted to £1,926,457 18s. 8d. The sum of £511,390 15s. 3d. was brought forward from December 31st, 1937, making a total to be dealt with of £2,437,848 r;s. rid. The Directors have appropriated £250,00o to Contingency Account and £150,000 to Reduction of Premises Account. After making these appropriations, the Directors recommend the payment of dividends at the same rates as previously, namely, to per cent. per annum on the " A " shares and 14 per cent. per annum on the " B " and " C " shares,. less income tax, involving a total of £1,510,128 14s. for the year, leaving the sum of £527,719 19s. I Id. to be carried forward.

The decrease this year was not unexpected, in view of the extra provision which had to be made for taxation and bearing in mind the general conditions ruling. It was those conditions which led us to reduce, to some extent, our holding of Securities and to reinvest part of the money in the less remunerative but more liquid form of bills. It is satisfactory to be able to make the allocations referred to, and the amount placed to Contingency Account is a transfer which, I am sure, in these times, will meet with the general approval of the Shareholders.

THE ECONOMIC SITUATION

When I addressed the Shareholders twelve months ago, I was speaking at the close of a year that had seen industrial production and the employment of insured workers in this country attain fresh high records. Already, however, indications were apparent that the confidence which had carried the United Kingdom through five years of recovery was on the wane, and a decline in activity in the United States, coupled with a fall in the prices of certain important commodities, had awakened fears of a downward movement in the trade cycle in minds that were acutely conscious of the severe depression of 1929 to 1932. Some industries had experienced a falling off in business, resulting in a decrease in employment, in addi- tion to which there was a general feeling of uneasiness in the inter- national field, which even at that time had to be taken into account in assessing the prospects for the future.

The year 1938 will be inevitably linked in our minds with the crisis which brought us to the brink of war little more than three months ago. The immeasurable relief that swept over the world after the Munich Agreement has unfortunately not been followed by that confidence in world political conditions which is so essential to prosperity. Various factors in the economic situation appear to be encouraging, but in an atmosphere of unsettlement and restlessness there is a natural disinclination to do business or to enter into forward commitments until the outlook becomes clearer and calmer.

It is a sad reflection that in almost every part of the world human energies and natural resources are being diverted to increasing arma- ments, with the result that progress in raising the standard of living must be retarded, if, indeed, the standard itself is not actually reduced. In present conditions, the United Kingdom has no alternative but to take every step to perfect its defences to ensure the protection of the countiy and of the Empire. Our ability to undertake this burden is unquestioned. Nevertheless, we have to realise that this growth in unproductive expenditure creates increasing problems for those con- trolling our national finances, and calls for a close scrutiny of every item of the cost of Government, so that no unnecessary calls should be made upon the public purse. Fresh money will have to be found, and no one will envy the Chancellor of the Exchequer his task. The position calls for a delicate adjustment to be made between State borrowing and taxation, for with taxation at its present high level, it is important to do nothing which either diminishes the returns from taxation, or destroys the ability or the incentive to save. It is by the savings of the people that the capital assets of the country are created, and if the demands made by the State bear too heavily on the shoulders of the citizen, there is a risk that the priceless habit of saving may be impaired.

It is in these conditions that one must view the economic events of the past twelve months and the prospects for the future. It would be unreasonable to expect that this country could escape the decline in trade ghat has affected other nations, and it is, therefore, not surprising that, in spite of the growth of production for armaments, there has been a decrease in industrial output and a rise in unemployment.

OVERSEAS TRADE

The importance of our export trade has been emphasised again and again. The subject loses nothing of its importance by repetition. Our dependence upon export business, as an outlet for a substantial part of our production and for securing to us the foodstuffs and raw materials which we need, is self-evident. The steps which the Government are taking, therefore, to obtain fairer competitive conditions for British products in markets abroad are of great moment. The arteries through which the stream of international trade ought to flow have become numbed and atrophied, and any measures that can revive and stimulate the flow of goods between one country and another are welcome. It is for this reason that the proposal to extend the Export Credits Guarantee Scheme is encouraging. The Bill now before Parliament is designed to increase the amount and the scope of the guarantees which, judged on strictly commercial grounds, can be given through the Export Credits Guarantee Depart-

ment of the Board of Trade in connexion with exports from this country.

The signing of the Anglo-American Trade Agreement is no ordinary achievement, for, apart from the benefits which must surely accrue as an immediate and direct result of the Agreement, it will have a far-reaching influence, wide in its scope, and possessing infinite possibilities. This Agreement, made between the two largest trading nations in the world, comes into being, fortunately, when the economic conditions in the United States are showing signs of improvement. It was made possible with the help of the Dominions and India who, in order to facilitate the negotiations, were willing to forgo certain of the advantages to which they were entitled under the Ottawa Agree- ments. It is a great contribution towards freer world trade.

THE BALANCE OF PAYMENTS The figures of our overseas trade in recent months have shown a slightly better tendency, although for the year as a whole both imports and exports are lower than in 1937. As is known, we import a great deal more than we export. Last year, imports of merchandise and silver were £939 million and exports were £562 million, leaving what is described as an " adverse balance " of £377 million. In 1937, imports were £1,048 million and exports were £606 million, leaving an adverse balance of £442 million. To make up the dif- ference between what we have to pay for imports and what we receive from customers abroad for our exports, we rely on " invisible exports," i.e., interest on overseas investments, shipping earnings, income from banking and insurance services, brokerage and commis- sions. The estimated figures of invisible exports for 1938 are not available, but in 1937 the net receipts from this source were estimated at £395 million and their importance is shown by the fact that, although insufficient to cover the deficit on our visible trading account, they were equal to no less than 65 per cent. of the total of our exports of merchandise and silver in that year. It may be that, taking all the various factors into consideration, there will be some reduction in the total of our invisible receipts for the year 1938, for one has to bear in mind that in 1937 general trade was more active than during the past year. It is for this reason that one is glad to see the decline in the adverse balance of visible trade, although unfortunately it has not come about by reason of increased exports but of reduced imports. To some extent, this country has gained, owing to the fact that prices of the goods we import have fallen, whereas prices for exported goods have on the whole been main- tained. But such changes in the relative levels of prices may not of themselves be of ultimate benefit, for their reaction on the pur- chasing power of consumers abroad may eventually be reflected in reduced orders placed in this country.

A study of the changes in the balance of payments from year to year is important, for these figures indicate the extent to which the nation is building up or reducing its resources invested abroad. The United Kingdom, which is so dependent upon overseas supplies of foodstuffs and raw materials, is able to enjoy a high standard of living, largely owing to the substantial income which it derives from investments in other countries as the result of the thrift of past generations. During a period when increasing sums have to be devoted to unproductive expenditure, it would not be unreasonable for this country to draw on its external resources, but this state of affairs, while it need not give rise to undue concern if of short duration, could not be viewed with equanimity if it were allowed to become protracted. Over a long period, the earnings of this country from its exports of merchandise and from its invisible exports have been sufficient not only to pay for the imports we consume but also to provide a margin for investment abroad. Taking a long view, the importance to this country of its income from external capital, which in 1937 yielded a net amount estimated at £220 million, emphasises the need wherever possible to build up our resources abroad.

The restrictions which, in present conditions, it has been found necessary to place on foreign lending by this country can be well understood. Apart from such restrictions, however, investors are naturally hesitant to venture their capital in new enterprises and the great volume of short-term money which has been accumulated in international monetary centres testifies to the lack of confidence that discourages holders of capital from employing their resources in a more permanent manner. Opportunities for profitable investment abroad do arise, but in a world that has seen vast changes in methods of trading, the growth in the policy of self-sufficiency, the restriction of trade by clearing agreements and barter arrangements, and many defaults on foreign loans, any marked increase in foreign investment can hardly be expected ; and in so far as such lending proves possible, the provision of capital by this country may need to be largely confined to transactions which result in some direct benefit to British industry.

The passing of the year 1938 leaves us with few regrets. But if it has been memorable for the anxious times through which we have passed, it has also been memorable for the steadiness and solid purpose which have been displayed by the nation, even when conditions seemed most threatening. Who can speak with any certainty of the future while the present uncertainty in international affairs persists ? If the feeling of unsettlement could be dispelled, economic improve- ment would surely follow. Business enterprise has been held in check, but, in a clearer and more certain atmosphere, there is no doubt that confidence would be re-born. In any event, there is no room for pessimism in our creed. Let there be faith in the future, faith in the ability of this country to surmount its own difficulties, and faith that the efforts which are being made in the cause of world peace will not be set at naught.