COMPANY MEETING

LLOYDS BANK LIMITED

ERITAIN'S STRONG MONETARY POSITION COMPARISON WITH 1914 LORD WARDINGTON'S REVIEW

THE eighty-first ordinary general meeting of the shareholders was held on the 27th January at Southern House, Cannon Street, London. Lord Wardington (chairman of the bank), in the course of his speech, said : Two of our directors have either retired, or are not seeking re-election. Sir Edwin Stockton, who joined our board in 1923, and retired last month owing to ill-health, brought with him to our councils a wide knowledge of Lancashire business conditions, and as a director of the London, Midland and Scottish Railway Company, of the London and Lancashire Insurance Company, of the Manchester Ship Canal, and, in addition, of several other companies, as also as ex-president of the Manchester Chamber of Commerce, he could rightly be described as a thoroughly representative man of the North-West portion of the country.

Mr. G. A. Harvey came to us on our amalgamation in 1918 with the Capital and Counties Bank, Limited, of which he was a joint general manager. At that time he had already had 48 years of banking experience, and now that he has decided not to seek re-election he can have the satisfaction, vouchsafed to few people, of being able to look back upon no less than 68 years of active and useful banking service.

To both these gentlemen you will want to offer your grateful good wishes on their retirement.

If you will kindly turn to the balance-sheet you will find the figures not greatly changed as compared with those of 1937, and I shall only draw your attention to some of the more important.

To take the liabilities side first, the total due on current, deposit and other accounts has been comparatively well maintained at a figure showing a reduction of £12,000,000 in the year. The decrease is not due to any loss of foreign deposits, because, as I told you when we last met, we refrained from offering unduly competitive rates for this class of deposits, believing them to be a not unmixed blessing either to ourselves or to the country, owing to their fleeting charac- ter, which rendered them liable to become an embarrassment to us and the exchanges if they were hurriedly withdrawn. The reduction under this heading is due to two principal causes. In the first place to the amalgamation of a large group of accounts which previously figured on both sides of our books, as overdrafts on the one hand and credit balances on the other. The nett figure alone is now shown, causing .a contraction on both sides of the balance-sheet. The remaining part of our reduction is widespread over our system, and the balances have been withdrawn for investment, or in search of a higher return of interest than that which we felt justified in offering.

On the assets side of our balance-sheet, the liquid assets of cash, money at call, etc., bear very much the same proportions to our deposits as they did last year, but you will be glad to notice the welcome increase of £3,000,000 under the heading of British and colonial and foreign bills.

LOANS AND ADVANCES

Loans and advances, the most important item of our assets, show a reduction of over £6,000,000, which undoubtedly is a disappoint- ment, and if those who insist that banks should be forced to increase their credit facilities can tell us how this can be done, in the absence of willing and credit-worthy borrowers, no persuasion, let alone force, would be required to induce banks to comply. They would be only too glad to see a keener disposition on the part of the public to take greater advantage of the credit facilities we are anxious to give.

Under some headings in our Advances we do see a tendency to increase. Those engaged in Agriculture, though they are borrowing less than they, did a few years ago, have taken slightly more from us this year than last, and again I must pay tribute to the farming community for the remarkably small amount of bad debts which we have suffered under the heading Agriculture. They are as usual, the largest borrowers of all categories into which we divide our Advances, and considering the many difficulties of which they have been the victims, our comparative immunity from bad debts on their account is greatly to their credit.

The final figure of our profit and loss is £527,000 less than last year, but in a period of reduced loans and turnover, and on the other hand of increased costs, such as National Defence Contribu- tion, and tens of thousands spent on Air Raid Precautions, which latter we devoutly hope will not be a recurring item, I think we may be justified in thinking that a sum of £1,705,000 is not unsatisfactory. These are the figures representing the result of our trading during a year which none of us is likely to forget, and I think. it might be not without interest to see how our financial situation has stood the strain, and what lessons we ought to have learned.

My chief purpose is to show that in many ways our banking and monetary system was both much stronger and more elastic last September than it was at the outbreak of war twenty-four years ago. On the other hand this ought not to delude us into thinking that no weaknesses were revealed by the recent crisis. In August, 1914, we had a currency almost entirely of gold. Gold sovereigns were in circulation. The Bank of England was bound to redeem its Notes in gold ; the fiduciary issue- was limited to £18,000,000, and the Bank was bound to buy and sell gold on demand. At the same time, the Bank's gold reserves on July 29 only amounted to £37,000,000. There was thus a real danger of a rapid exhaustion of the Bank's gold reserves, either through an increased demand for currency by the public, or else through a transfer of funds abroad with its consequent reaction on the exchanges. The problem of meeting the public's increased currency needs was meet by the creation of Treasury Notes.

THE TREASURY NOTE ISSUE

These had to be hurriedly improvised, and, incidentally, the banks were empowered to borrow Treasury Notes up to the limit of 25 per cent. of their deposit liabilities. Comparatively little use was made of this facility, but the fact that it was available gave instant relief and at the same time checked any tendency to withdraw deposits. Ultimately the Treasury issue was taken over by the Bank of England on behalf of the Treasury in 1928. At the same time the fiduciary note issue was established at £260,000,000 (com- pared with £18,000,000 in July, 1914) but with the very important reservation that the limit could either be expanded or reduced under defined conditions. After being reduced to £200,000,000, with a seasonal increase of £30,000,000 over last Christmas, we have seen within the last few weeks how it has been increased to a total of £400,000,000.

The next problem arose from the fact that large credits had been issued by banks and accepting houses to their clients all over the world. Failure to meet these bills on maturity would have involved the Discount Market and the whole British banking system in serious trouble and loss. After a temporary moratorium it was arranged for the Bank of England to take over approved pre- moratorium bills without recourse to the holder and to hold the bills in cold storage until the end of the war. The Government guaran- teed the Bank against loss, and the acceptor who was liable for payment of the bill was charged interest at 2 per cent. over Bank Rate.

STOCK EXCHANGE PROBLEMS

Another series of important problems arose in connexion with the Stock Exchange. At the end of July, 1914, there were many open positions on the Stock Exchange, and a large number of these were financed directly or indirectly by the banks. As a consequence the Stock Exchange remained closed from July 31st, 1914, until the beginning of 1915, and minimum prices were fixed for most Arst- class securities.

These are only a few of the problems and the methods of meeting them which arose in 1914. If we pass on to September, 1938, the first point which springs to light is the far greater elasticity of our monetary and banking system compared with that of 1914. First, for good or for evil, we were no longer on the gold standard, gold is not now in circulation, and our note issue, as I have already men- tioned, has been rendered very much more elastic, and the impro- visations of 1914 were unnecessary last September.

DEMAND FOR CURRENCY

There was, it is true, an abnormal demand for currency, but this demand was not due to any feeling of panic. On the contrary, the general public behaved with exemplary calmness. What happened was that emergency A.R.P. expenditure, the mobilisation of the Fleet and the anti-aircraft division of the Territorial Army, and the special currency needs of those who were sending their families away to the country, all meant that additional notes were required. Also we, in company with the other banks, felt it advisable to reinforce our local currency reserves throughout the country, for had war broken out railway and other communications might have suffered from air attack. But the real point of contrast is this. In 5954 a new paper currency had to be created in order to satisfy the war-time demand and the banks remained shut for three days while the currency was improvised. Last September, on the other hand, the big increase in the note circulation took place entirely automatically and with no disturbance at all.

EXTERNAL FINANCIAL RELATIONS

From our internal currency position I pass next to our external financial relations. Here the first point of contrast is that we were not faced once more with the 1914 problem of outstanding bills accepted in London on behalf of overseas clients.

For years past a mass of floating unemployed capital has been constantly shifting from one centre to another, the motive behind the migrations being generally a search for safety rather than a desire for profit. Much of this money had found refuge in London. So soon as the possibility of war emerged it began to flow to other centres, and if war had broken out, or even had the crisis been prolonged, the stream might have developed into a torrent, and even as it was a considerable strain was put upon the exchanges. We were, however, in a much stronger position to protect ourselves. In contrast to 1914, when the Bank of England only held £37,o0o,000 of gold, with perhaps £530,000,000 of gold coin in the pockets of the public and the tills of the banks, last August we were in a very strong position.

On March 31st, 5938, when they were then at their peak, our total gold reserves, valued at the then current market price of 14os. per ounce fine, were no less than £835,000,000. The Bank of England's own reserves valued at 1405. came to £538,000,000, while the .(Continued on page 596) COMPANY MEETING

LLOYDS BANK LIMITED

(Continued from page 195) Exchange Equalisation Account—a new factor since 1914—held L297,000,000. Although in defending sterling we lost nearly £ too,000,000 of gold during the autumn crisis, only minimum dis- turbance was caused to the banking system, or the money market, as none of this gold came out of the Bank of England, but from the Exchange Equalisation Account, so it did not lead pound for pound to a corresponding contraction of the credit basis.

THE STERLING-DOLLAR RATE

The past year has seen a fall in the sterling-dollar rate from round about $5.00 to round about $4.65. This fall is a matter for regret as bringing to an end for the time being the comparative stability which had been established after the disturbed period 1931-34, when at one time it had been as low as $3.23. But it took place without weakening the friendly relations which existed between the parties to the Tripartite Agreement, which means that it was recognised as being due, not to any deliberate policy of depreciation, but to causes which were not under the control of our monetary authorities.

Is it not time that the fallacy was realised of explaining the course of British trade with the whole of the rest of the world by reference exclusively to the exchange rate of sterling on one other currency, viz., the dollar? Sterling may be over-valued, and this may be a cause of the recent excess of imports over exports ; but the over- valuation is presumably in relation to the currencies of the countries from which the imports come and to which exports have declined; and the United States is only one among a number of these. It is a fallacy to explain the British trade balance by reference to the sterling-dollar rate ; it is equally fallacious to explain the sterling- dollar rate by reference exclusively either to British or to American foreign trade. The sterling-dollar rate depends on the aggregate of transactions that take place between the sterling area as a whole and the dollar area as a whole, and of these transactions only a fraction are trade transactions. In recent years, as everyone in touch with exchange markets knows, the sterling-dollar rate has been deter- mined mainly by capital movements from Europe to America and vice versa.

So far as the Stock Exchange was concerned, there was one funda- mental difference between August, 1914, and September, 1938. Twenty-four years ago war came as a complete bombshell, and the Stock Exchange was caught with many open commitments. By last September, however, the danger had been foreseen weeks and even months ahead.

As far as I have gone in this comparison between the two periods, the advantage generally, I think you will agree, is largely in favour of 1938, but in one respect we are not so well off as we were in 1914, as we have lost a large proportion of our 1914 reserve of American securities.

OUR EXPORT TRADE

The question of our export trade figured in the speeches of nearly all bank chairmen to their shareholders last year, and it has lost none of its importance today. That it is still receiving considerable atten- tion in Government and trade circles is indicated by what has been said in Parliament, by the increased export credit facilities which have been foreshadowed, by the trade agreements entered into, particularly the important Anglo-American agreement, and by the deliberations of such bodies as the Federation of British Industries and the Association of British Chambers of Commerce. In these days of fierce competition, with an ever-increasing tendency towards national self-sufficiency and industrialisation; when all countries are striving to sell and are becoming more unwilling to buy; when every kind of obstacle is placed in the channels of commerce, trade takes on the aspect more and more of commercial warfare, instead of being, as it should be, an exchange of goods for the benefit of both parties. Anything that can be done, therefore, in the direction advocated by the President of the Board of Trade, whereby arrange- ments might be made between the industries in the various countries, including our own, which would allocate markets fairly and enable everyone to do the maximum of trade on the soundest possible basis, would be greatly welcomed. I see from the papers that the Loco- motive Manufacturers' Association have provided an object-lesson of this kind in the negotiations which they have opened up with Turkey. In these days, when the tendency in some quarters to hurl insults and challenges across the seas is so noticeable, I wonder if you will think it out of place at a bank meeting if I recall an ancient warning, which seems to me as modern and is truly appropriate to our international problems of today, whether political or economic, as it was 19 centuries ago : " If ye bite and devour one another, take heed lest ye be not consumed one of another."

I now beg to move : " That the report just taken as read be received and adopted, and that, in accordance with the recommenda- tion of the directors therein, final dividends be declared for the year ended December 31st last on the paid-up capital of the company of 6 per cent. actual on the 'A' shares and of 21 per cent. actual on the B' shares, payable, less income-tax, on and after January 28th, 1939." (Cheers.) The resolution was seconded by Sir Austin E. Harris, K.B.E. the deputy chairman, and carried unanimously.

The retiring directors were re-elected (with the exception of Mr. G. A. Harvey, who did not offer himself for re-election) and Messrs. Price, Waterhouse and Co. were reappointed auditors for the year 1939.

Votes of thanks to the directors for their services during the past year, to the staff for their excellent work, and to the chairman for presiding were carried and the proceedings then terminated.