COMPANY MEETING

LLOYDS BANK LIMITED

ANOTHER SATISFACTORY YEAR LORD WARDINGTON'S SPEECH

THE eightieth ordinary general meeting of the shareholders of Lloyds Bank Limited was held on January 28th, at Southern House, Cannon Street, London.

Lord Wardington (Chairman of the Bank) in moving the adoption of the directors' report said : I regret that I have to report the death of the senior member of our board, Mr. Charles E. Barnett, shortly after our last annual meeting. He was a partner in the old banking house of l3ametts, Hoares, Hanburys and Lloyd, which became amalgamated with Lloyds Bank in 1884. He was a link between the very different conditions prevailing in the latter half of last century and those which confront us now.

Our report and balance-sheet which we present to you today, and which I presume you will, as usual, take as read, show some very interesting but no very remarkable changes. To take the liabilities side first, you will see that the reserve fund is now £9,500,000 as compared with £9,000,000 in 1936, the result of the retransfer which we have again made of half a million from our internal funds. We did the same last year, and there only remains a further L5oo,000, which, when it is re-transferred, will restore to the published reserve the whole of the £2,500,000 which you will remember we took in 1931 from that account to supplement our internal investment reserve fund. This was a precautionary measure, as I reminded you last year, of which we never had the necessity to make use.

DEPosrrs.

Our, current, deposit, and other accounts stand at £41o,000,000, but if it had not been for the unexpected receipt in the last week of the year of some large sums, the increase of £4,000,000 would have disappeared, and our deposits would have been below those of last year.

The question as to whether we should make any special endeavours to increase the amount of our deposits has given us a certain amount of preoccupation. Although it would seem to be illogical to estimate the importance of any business by the size of its liabilities, there is no doubt that size has a certain attraction, and it is not unnatural to look with admiration at figures which indicate a great business, and there is the risk that any falling off in these figures may involve the loss of public esteem. However, latterly, we have been actuated by other considerations, and our guiding principle has been to refrain from bidding for deposits by offering higher rates than we thought were economically justified.

RETURN ON FOREIGN DEPOSITS.

Our principal concern was in connexion with foreign deposits— that is to say, that large amount of floating capital seeking a temporary home, either with the object of obtaining a safe asylum or a higher return. Money of this character is very unreliable and is apt to be withdrawn at the shortest possible notice when any scare occurs. For this reason it is essential to keep such a deposit in a liquid form, so that it can be readily returned when called for.

Short-term methods of employing this money during last year have only been able to command a rate of about a half per cent., the rate of allotment for three months Treasury bills, for instance, during the past half-year averaging no more than z rs. 4d. per cent. We considered, therefore, that to allow a foreign deposit i per cent. or more must result in a loss to the bank. It can, of course, be argued that only a portion of such deposits is likely to be withdrawn at any one time, and that it would be a perfectly sound proposition to treat them as we do our home deposits—that is to say, to keep the usual proportions in cash, Treasury bills, loans, gilt-edged securities, &c.—but for the reason given we felt that such an argument was not economically sound if applied to anything in the nature of nervous foreign money.

There seems to me to be another reason, and an important national one, why the inflow of fugitive money into this country should not be encouraged. Nearly every other country has refused to give anything for it but a purely nominal rate. Some refuse to give any interest at all, and even charge for its safe keeping, and it seems to me to be sound business to follow the example of those countries and not to run the risk of putting the stability of our country's exchange to the serious inconvenience which would arise if deposits of this nature and in considerable volume were suddenly withdrawn and sent to other countries, which for the moment appeared a more attractive asylum.

Tan DiscouNT MARKET.

Another undesirable result appears to have followed from an undue competition for foreign deposits. A greater demand for bills was a natural consequence, and the Discount Market has again suffered from an inability to extract a living wage from the low rate applied to the discount of bills. The Discount Market is an essential part of London's financial equipment, and of great import- ance in the composition of its intricate and delicate activities. It is highly desirable that it should be allowed an opportunity to live, and though the excessively low rates—to some extent artificial— which have ruled during recent years may be an advantage to the Treasury, and indirectly therefore to the taxpayer, yet these advantages would be dearly bought if they were to mean the extinction of the London Bill Market as we know it today, and consequently the greatly diminished attractiveness of the London bill, if its marketability were threatened. There are no other items on the liabilities side to which I wish to draw your particular attention.

INVESTMENTS.

On the assets side the account under the heading of investments calls for some comment. There has not been much change in the amount, the total being L2,000,000 less than it Was last year, but because investments occupy a far more important place than formerly in the utilisation of our assets, I want to take a little time in speaking of our investment policy.

To illustrate the change which has taken place over a period of years, I should like to call attention to the following figures :

Average percentage of— 1913. 1919. 1937.

Loans to Total Deposits • • 54.6 33.8 39.2

Investments to Total Deposits .. 12.1 20.9 28.0 Bills to Total Deposits . . 11.5 21.8 12.8

A point worth notice is that we have exchanged a considerable proportion of our commercial, private and other borrowers for the Government as borrowers, and it therefore behoves us to see that we have an investment portfolio with scientifically graduated maturities as evenly spread as possible, especially so inasmuch as it is not the habit of Governments in these modern times to repay their loans finally. It is therefore open to argument whether, in the interest of liquidity, the present position can be said to be as satisfactory to the depositors and shareholders as a wide variety of borrowers, many of whom require advances only for seasonal purposes.

REASONS FOR BOARD'S POLICY.

We have been able roughly to preserve our usual proportion between short term and medium term Government redeemable securities. Your directors have adopted this as a sound and essential principle in view of the fact that our liabilities are almost entirely repayable on demand or at short notice. The added importance which we pay to the investment policy is necessitated by the fact that the good trade which this country is now enjoying has not, except gradually through the year, influenced to the extent which might reasonably have been expected the sum total of our advances to industry.

The reasons for this are many and complicated, and would require considerable time to explain in detail. The fact remains, however, that advances are below normal in relation to our deposits, and that investments are above normal. The weight of money in the country, and the importance of keeping money at the lowest possible cost, in view of the Government's heavy expenditure programme, make it difficult to see in the immediate future a return to the normal ratio of past years of advances to deposits. With this fact in mind a constant scrutiny of our investments has been carried out, and advantage has been taken continuously of any anomalies which have existed in market values between comparable securities.

LOCAL GOVERNMENT BORROWINGS.

One of the features of the internal finance of the country at the present time which gives food for serious thought is the ever-increasing demand for loans by local government authorities. Indeed, the competition to borrow has been so great that, but for the careful nursing of the market by the Treasury and the Bank of .England, interest rates on local government loans would be higher than they are at present. The word " economy " has ceased to retain its old-time meaning. The protagonist in the cause of economy has been entirely eliminated. The word " economy " now means "wise spending." Wise spending from a local government point of view often means expenditure on whatever happens to be the current "fashion."

At a time when the primary need of defending the country is the subject of heavy additional borrowing—and taxation—by the Central Government, surely a large part of the borrowing by local governments could be postponed. The greater parr of this borrowing requires to be sanctioned by the Central Government. That sanction is invariably given, and so the burden of debt mounts higher and higher. Local rates are continuously increasing, and, what is more to the point, the quinquennial valuation always seems to produce a higher assessment—never a lower.

RENEWAL OF LOANS.

It is true that a large proportion of local government debt it described as productive. One cannot help feeling that such enter.- prises would be more productive in private hands. This has so often been proved when local authorities have attempted house building by direct labour. It is also true that there are some local governments who run their finances well. It is, however, the fact that nearly all local government public loans are immediately renewed at maturity, and, in the majority of cases, opportunity is taken to increase the amount required. Here are some figures showing the growth of local government debt :

1914•• £562,63o,600

1920 • •• • • • £555,145,000

*1935•- £1,421,5or,979 * Latest available figure.

One can foresee a position of considerable difficulty when local government obligations, running into many millions of pounds, mature, and holders desire to be repaid in cash rather than convert into new issues.

LOANS AND ADVANCES.

The next item of importance amongst our assets is our loans and advances. It is true that it shows an increase compared with last year of over £21,000,000, and the percentage to deposits has risen from 36.7 per cent. to 41.5 per cent., but I ought to point out that a large part of this increase only occurred during the latter end of the year, and the average throughout the year was 39.2 per cent. If the present figure continues throughout this year our profit and loss account ought to benefit.

(Continued on page 204.) COMPANY MEETING

LLOYDS BANK LIMITED (Continued from page 203.)

TRADE OUTLOOK.

In reviewing the situation last year, I had the temerity to utter a word of caution and to suggest that we ought to take every care to ensure against ;he activity of our internal trade degenerating into anything which could possibly be called a boom, and that in the second place we should look forward to the time when the chief causes of our internal activity had come to an end and take all possible measures to fill the gap with increased foreign trade.

The events of the past year have, I think, justified what may have appeared to be an unnecessarily cautious attitude on my part. It frequently appears to be the fate of a banker to be in opposition to the existing trend of public opinion, and if last year, when every- thing seemed rosy, I had my doubts as to the future, so again now, when talk of a recession in trade is somewhat loud and insistent, I see no reason in the fundamentals of our commercial position to apprehend any serious setback.

IMPORTANCE OF EXPORT MARKETS.

Bearing all these things in mind I should like to urge the importance of doing all that is possible not only to keep, but to increase the volume of our export trade. For this reason I welcome the steps which have been taken in this direction slow moving though they are, and I think the Government are to be congratulated for following up the Tripartite Agreement by endeavouring to arrange a trade agreement between the British Commonwealth and the United States of America, remembering that a large proportion of the trade of the world is accounted for by transactions between these countries, and for their co-operation with M. van Zeeland in his inquiry as to the best methods of removing those obstacles which continue to obstruct the flow of international trade.

Whatever steps may be taken as a result of his report, there can be no doubt of the necessity for securing a greater freedom of movement of goods between all nations. I referred at some little length to this point in my address to you last year, and I urged the importance to us as a great exporting country of taking every measure possible to see that our export markets were maintained. Today this advice seems to me to be more than ever necessary, and it would be fatal to let our general activity in trade, for which our rearmament programme may be increasingly responsible during the current year, shut our eyes to the necessity of preserving and increasing our overseas markets. It is so easy to lose them. It is so difficult, once lost, to regain them. The overseas trade figures for 1937 add point to these remarks. Our adverse visible trade balance, with exports of £596,761,000 and imports of £1,029,065,000, is no less than £432,3043000.

BALANCE OF TRADE.

In normal years it is easy to exaggerate the significance of an adverse trade balance. In the first place it is partly rectified by invisible exports, though any precise figure in regard to them is largely a matter of conjecture. Secondly, there is usually a natural lag between the arrival here of imports of raw materials and the subsequent export of goods manufactured from them, and therefore a true balance of trade cannot be accurately struck on any arbitrarily chosen date. But in present circumstances, when so much of our imports of raw materials is being used for the manufacture of armaments they cannot form the usual basis for subsequent exports, and our final balance of trade for 1937 must inevitably, even after making all allowances, throw exceptional strain on our exchange position.

Chairmen of the big banks have, I see, drawn attention to the importance of our export trade, and the necessity for its preservation, both from the point of view of maintaining employment in the future, and of off-setting the large amount of our imports. I gladly add my testimony to what has been so ably stated on this very material point.

The report and accounts were adopted.

From a study of the customary analysis of our advances we see that there has been a large increase of L9,000,000 under the omnibus heading of" Personal and Professional ' ; an increase of £2,000,000 under" Engineering " ; while" Oils and Fats "borrowed £1,055,000 more, and Public Utilities" L885,000 more. On the other hand, "Ranking, Insurance and Finance" required £3,242,000 less, and "Shipping and Shipbuilding" L5,900,00e less. The other differ- ences are comparatively small.

PROFIT AND Loss.

Our profit and loss account shows the satisfactory increase of £88,000, all the more satisfactory because it is arrived at after making the new provision for National Defence Contribution, and after providing a substantial sum towards our superannuation fund.

Incidentally, I may mention that we propose next year to simplify the unnecessarily cumbersome form of our profit and loss statement, especially that appearing in our report. It can, I think, be taken for granted that our profit figure has only been arrived at after debiting all such ordinary expenses as salaries, pensions, taxes and the usual allocation to staff funds, without enumerating all taxes, items separately.

Some of you may have hoped that these figures might have prompted us to recommend an increased dividend, but I think, on reflection, that you will agree with me that there are a sufficient number of factors entirely outside our control which render it desirable not to do anything which suggests that the signals are yet standing at "All Clear." I feel, too, that the staff might legitimately consider that they have a first claim on any increased profits for the restoration of those reductions in the annual increases which they have suffered in recent years.