COM1-ANY MELTING

LLOYDS BANK LIMITED

ADDRESS TO THE SHAREHOLDERS OF THE BANK BY THE CHAIRMAN, THE RT. HON. LORD WARDINGTON IN order to shorten the formal business at the annual general meeting of the bank to be held on January 31st, 1941, the address of the chairman (the Rt. Hon. Lord Wardington) is being posted to share- holders with the annual report and balance-sheet, and reads as follows: You will notice some interesting figures in the balance-sheet now in your hands, which, together with the report, I shall ask you to take as read at our meeting on January 31st.

The first point to which I wish to draw your attention is the credit of £5oo,000 which we have placed to our published reserve fund. The latter will now appear at the figure of £10,000,000. You will remember that in 1931 we took from our published reserve fund the sum of £2,5oo,000 to keep in our internal funds for the protection of any depreciation of our investments. It was always the intention to replace this amount when we felt that it was no longer likely to be required. Transfers, amounting in all to £2,000,00o, have already been made in 1932, 1934, 1936 and 1937, and the balance of £5oo,00o has now been transferred, restoring our published reserve to its former figure of £to,000,000. This last payment of £500,000 does not come from our profits—it would have been very pleasant if they had been large enough to enable us to take some for this purpose—but it represents a transfer from our investments reserve fund and leaves a substantial amount in that account, which we feel justified in believing to be more than sufficient for any probable deficiency in the future, seeing that practically all our first and second line investments are dated stocks, more than half of them with less than ten years to run.

Our currenz, deposit and other accounts again stand at a record figure and show an increase over last year of £57,000,000. Other banks have shown increases in like degree, and this feature in all our balance-sheets is a sign of the times in which we live. It is the result of borrowing by the Government, which spends the proceeds in paying for war weapons and contracts connected with the war, and these payments come back to us from those who receive them and are deposited in their banking accounts.

When we come to the other side of our balance-sheet you will see how we have employed the increased amount deposited with us.

The last two items of our liabilities—acceptances, endorse- ments, &c.—show a natural decline, due to the fall in international business.

On the assets side our cash has increased by £14,400,000 and our balances with, and cheques in course of collection on, other banks by £1,3o3,000, another sign of the times and the result of delays in postal delivery.

Our money at call and short notice has decreased by £8,000,000 and our bills by £29,000,00o, while our investments in Government securities have increased by £27,000,000, and in addition we have lent to the Government £65,5oo,00o on what is called Treasury deposit receipts.

In other words, the whole of our real increase in deposits (allow- ance having been made for the swollen volume of uncleared cheques) has been lent to the Government.

THE Bans' WAR EFFORT

It is possible to go further than this and to say that practically the whole of the deposits held by the clearing banks is applied directly or indirectly toward the war effort of the nation. ghe final figures for the year are not yet available, but the November figures show that of the total deposits of £2,701,000,000, £285,00o,000 were kept in cash and balances at the Bank of England to meet the currency requirements of the public. Stocks of currency have been increased and redistributed by the banks through their network of branches, so as to ensure that there shall be no failure in the supply of currency to the public in any emergency.

£339,000,000 were represented by bills, which, in these days, are mainly Treasury bills and are therefore direct advances to the Govern- ment, and a further £236,00o,000 have been advanced to the Govern- ment in the form of Treasury deposit receipts.

£140,000,000 were lent to the money market against Treasury bills and British Government bonds. The investments of the banks amounted to £766,00o,000, and probably £600,000,00o of this were in British Government securities.

Of the banks' advances to customers, £941,000,000, it may be said today that by far the greater part is lent for war purposes and other public needs—i.e., to Government contractors and sub-contractors for armament work, to public authorities, public utility companies and farmers, and for other essential purposes, such as the finance of our import and export trade and the manufacture of essential civilian commodities.

It is the policy of the banks to ensure that no essential war activity of the nation shall be hindered by any financial difficulty, and that there shall be no interruption in the continued flow of .armament work through any lack of finance.

It is a tribute to the manner in which the banks conduct their business that they have been able to supply all the additional accom- modation required for war work and at the same time to lend large additional sums to the Government without in any way impairing, but rather strengthening, their liquidity. They have, of course, only

been able to do this through the additional credit created by the Government and by restricting advances for non-essential purposes. This has given rise in some cases to complaints of undue hardship, and it is right to make it clear that anyone who has been asked to repay a pre-war advance, and to sell securities to do so, has the right to appeal to the Courts under the Emergency Powers Act, 1939, for relief if suffering from war-time conditions. Every encouragement has been given by the banks to the War Savings movement. • Posters and literature have been prominently displayed in their offices ; they have reduced the rate of interest which they allow on deposits with the object of encouraging sub- scriptions to the issue of 2f per cent. National War Bonds - and the maximum amount which may be held in a Savings Bank account at the special rate of interest allowed to such depositors has been reduced to encourage the purchase of National Savings Certificates and 3 per cent. Defence Bonds. The banks have given every possible assistance to the War Weapons Weeks which are being held through- out the country and have themselves made investments to supplement the splendid local efforts.

The whole of the intricate and difficult work of a special character in connection with foreign exchange which has arisen since the out- break of war has been conducted on behalf of the Government through the medium of the banks in a wholly admirable manner.

I am not giving these facts and figures in any spirit of complacency, or with any desire to blow a bankers' trumpet. Bankers are not perfect and no doubt are guilty of sins both of omission and com- mission from time to time, but that they are sincerely anxious to do their utmost to help the nation's cause, particularly in this time of anxiety and stress, I think there can be no reasonable doubt. This feeling permeates their ranks right through from the lowest to the highest. It is humiliating, therefore, to find a noisy few amongst the public who, from their position in literature, politics or finance, should be able to guide and instruct others, yet, nevertheless, either from ignorance or prejudice never let an opportunity pass of trying to belittle the efforts of balls, to curtail their profits, or misrepresent the facts. I can think of nothing which would please Hitler more than the success of these gentlemen who appear to be trying to undermine the confidence which in this country is generally, and I believe rightly, given to the banks. - A strong and prosperous banking system, at all times highly desirable, is more than doubly so in war-time.

THE BALANCE-SHEET (CONTINUED) To return to the figures "of our balance sheet. Our Scottish subsidiary, The National Bank of Scotland Limited, shows a position of increased strength and usefulness, and we congratulate them and ourselves on their latest satisfactory balance sheet.

Of Lloyds and National Provincial Foreign Bank Limited I cannot give you any detailed information, so many of their branches being in enemy-occupied territory or in places with which we are not able to communicate, but' we have every, reason to suppose that their capital, which is in sterling, is intact.

We next come to our advances. These are smaller both actually and relatively than they were last year, and perhaps it is permissible for me to point out that it has appeared to us particularly desirable at the present time to follow the advice of the Cunliffe Committee, and separate items in transit from advances. Unless this is done the swollen figure is apt to be misleading

I was myself surprised to find this reduction in the amount of our advances. I had thought that the demands upon us for assistance in meeting higher taxes and in increasing trade activity in war pro- duction would have had an opposite effect. I had not sufficiently foreseen to what a large extent peace-time banking would come to a stop with the outbreak of war, nor had I realised the various restric- tions on borrowing by municipal and other public authorities, nor the extent to which Government itself would finance the purchase of commodities and war work generally. From the point of view of the bank itself and its profit-earning capscity this is to be regretted, as advances are the most profitable of its assets, and I think anyone would have been surprised a couple of years ago if he had been told that today the percentages of our advances and investments to deposits would be practically identical.

I ought perhaps on this occasion to make a reference to our bank premises account, which has been reduced not only by the £100,000 specially allocated out of profits and the proper annual amount for the amortisation of leaseholds, but also by the transfer to other assets and accounts of the value of certain branch premises damaged by enemy action, against which, presumably, we shall have claims for compensation under the War Damage Bill when it becomes law.

PROFIT AND Loss ACCOUNT

We now come to our profit and loss account. The net profit brought in at the figure of £1,383,8o7 is somewhat lower than that of last year, but I think we can congratulate ourselves that it is not lower still. When you consider the unprecedented times in which we have been living during the last year with its many extraordinary expenses, its heavily increased taxation, the serious curtailment 01 out usually most profitable assets, and with many of our normal activities in abeyance, I feel that the result is better than we might have expected. I have already referred to the drop in our advances and our 1.3l.11s, while our commissions, especially those connected with underwoung and acceptances, have either wholly disappeared or been largeh reduced.

On the other hand, our greatly increased investment figure hai resulted in larger dividends, which helped to offset the decline revenue-earning capacity shown by some of our other assets. The income from Treasury deposit receipts—a new item in our balance sheet—also goes to counteract the loss of revenue in other respects. and I am glad to say that in spite of the troubles that have befallen so many of our smaller trading and shop-keeping customers, the provision required for bad or doubtful accounts- has been coo" paratively