FINANCE AND INVESTMENT
By CUSTOS ALTHOUGH it is again the fashion in some quarters to accuse the banks of exploiting a money monopoly for the benefit 01 their shareholders, I cannot discover any evidence to support this charge in the latest banking figures. It is true that all the " Big Six " had the use last year of a further substantial addition to their deposit resources and that gross profits increased in consequence. It is also the fact that war conditions have enabled the banks to reduce their provision for bad and doubtful debts. Even if that were the whole story, however, the charge of profiteering would need to be considered in relation to the zoo per cent. Excess Profits Tax to which the banks would be subject like any ordinary industrial concern. As everybody knows, the banks' net profits, after tax, were almost uniformly lower last year than in 1940, the whole of the increase in gross earnings—and a little more—having been swallowed up in increased taxation. The solitary exception is the Midland, which somehow or other—Mr. McKenna does not throw much light on this point—contrived to raise its net figure after tax above the 1940 level. None of the banks raised its dividend, but all maintained the 1940 rates and made substantial additions to their already large published reserves.
DEPOSITS AND ADVANCES
From the full figures now published by the " Bix Six " it is plain that the trend of British banking was in the same direction last year as in the first i6 months of war. In every case deposits rose substantially in 1941, advances fell sharply, there was a moderate contraction in Treasury bill holdings, a steep rise in Treasury deposit receipts and gilt-edged portfolios and an increase in cash. Why these changes took place is now familiar story. So long as Government expenditure grows, banking deposits will continue to increase, and so long as Government continues to undertake more and more activities normally carried on by private enterprise the deMand for bank (Continued on page 94)
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FINANCE AND INVESTMENT
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advances will decrease. As all the bank chairmen are at pains to point out, there is no unwillingness to use resources in advances to industry, which constitute the most profitable outlet for a bank's funds.
So we have Mr. Rupert Beckett, of the Westminster, and Lord Wardington, of Lloyds, both pointing out that for the first time in banking history the ratio of advances to deposits has fallen below that of investments to deposits. This is not, of course, a desirable distribution of assets from the standpoint of profit- earning, but, as Mr. Beckett says, it is " a quite natural and healthy feature " in a nation geared to maximum war production. Mr. Colin Campbell, the National Provincial chairman, reminds us that the expansion of banking figures is not, in time of war, a reflection of increasing industrial and trading prosperity.
STRONG LIQUID POSITION Apart from their purchases of Government securities, the banks' contribution to the task of war financing has taken the form of adding to their holdings of Treasury deposit receipts and facilitating the renewal of the Government's Treasury bills. Mr. McKenna, the Midland Bank chairman, in a characteristically lucid review of our war-time finances, estimates that about a quarter of the Budget deficit since September, 1939, has been covered by borrowing from the banks. He also shows that the .£1,1oo millions made available to the Government as a result of the increase in deposits and the fall in advances has been provided on terms which give full security to bank depositors.
For confirmation of this statement one has only to look at the banks' balance-sheets. In every case the liquidity items, com- prising cash, money at call, bills discounted and Treasury deposit receipts, have risen to an unusually high proportion of the deposit liabilities.
BANKERS AND INFLATION On the vexed question of inflation the bank chairmen are not unanimous, except in the conviction that this peril must be avoided. Sir Noton Barclay, of the District, who sees the effects of rising wages in the industrial areas of Lancashire, is convinced that there is still too much private spending, chiefly by the wage- earning classes. This view is shared by Mr. Colin Campbell, of the National Provincial, who wisely offers the wage-ealners the full services of his bank for the safe custody of their surplus cash and the purchase of Savings Certificates. Lord. Wardington, of Lloyds, avoids controversy, but urges depositors to reduce their bank balances to the minimum and contribute directly to Govern- ment loans.
By contrast, Mr. McKenna seems to see inflation as a post-war rather than a war-time risk. This banker, who has been the most persistent critic of official monetary policy in recent years, is at last convinced that the Bank of England has acquired the inventiveness, adaptability and resourcefulness required for the proper functioning of the central bank.
As to the post-war prospect, Mr. McKenna emphasises the dangers of any hasty abandonment of necessary restrictions, particularly in the new capital and foreign exchange markets. He reminds us of the worst excesses of over-spending, inflation, speculation and capital expansion which overtook us in the 1918-2o period. What will be wanted, I agree, is the right blend of individual enterprise and official control which will ensure progress and the nation's well-being.
BANK SHARE YIELDS •
I see that both Barclays and Lloyds are taking steps to convert share capital into stock. While the object of this move is to save clerical labour, another result should be to increase the marketability of part of these two banks' capital. Bank shares as a whole have held their ground well in 1941, and now stand at prices offering yields of about 31 to 4 per cent. on the fully paid and about 41- per cent. on the partly paid issues. These seem to me to set a fair valuation on the strength of the banks reserves and the economic and political risks of this type of investment. Bank shares are well worth holding.
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