Banking in 193o

A Difficult Year

TIIERE appears to be a popular belief in some quarters that no matter whether general conditions in the country are prosperous or not, the profession of banking is so easy and so lucrative that the maintenance of profits- under almost. any conditions is a kind of foregone concluSion. To some extent, no doubt, this belief has been fostered by the great steadiness of banking profits and dividends distributed over a period of -years, and, as is often the case when things are going reasonably well, there is little dispoSition to search for the reasons for this steadiness, though doubtless if there should be any general reduction in .dividends there would be many enquiries as to why it wasf that profits have not been maintained. As a matter of fact, one of .the explanations of the 'steadiness of banking dividends is to be found in the simple fact that in the War and post-War years, when Some industrial concerns were making huge profits and distributing large dividends and bonuses, the banks, recognizing the abnormal conditions and also the fact that they were sufferers through the low 'prices of the Government Securities which they held, made it their- business to refrain from distributing higher dividends, pursuing, instead, a policy of building up large inner reserves—in other words, the interests and safety of the depositors were placed- before everything.

FALL IN PROFITS.

During the past year, however, bank shareholders and the public alike have had something in the nature of an eye opener with regard to banking profits. It is true that only one Bank—Lloyds—decided to pursue the ultra-cautious policy of effecting a slight reduction in its dividend, but one and all showed a material decline in profits, and in the case of the Westminster Bank, the Chairman, the Hon: Rupert E.' Beckett, intimated in the course of his speech at the annual meeting that unless the clouds Of depression lifted it Might be 'necessary to consider the question of whether the maintenance of the present. dividend was justified at the moment. To mention simply the various members of the " Big Five," it may be noted that Barclays Bank showed a reduction in profits during 1930 of about £500,000, Lloyds a decrease of a little over £400,000, the Midland a decline of about £850,000, the National Provincial a fall of about £250,000, and the Westminster a decline of about £340,000. Moreover, all the five Banks showed a very considerable reduction in the amounts carried fOrward, the decline in the case of Barclays being about £460,000, in the case of Lloyds about £156,000, in the case of the Midland nearly £400,000, while the reduc- tion in the carry forwards in the National Provincial and Westminster was about £260,000 and £300,000 respectively. Before Commenting upon some of the features in the balance sheets of the Banks, it will be useful, perhaps; to enquire what - were the main causes responsible for eating into bank profits during the past year. Time and again bankers have declared that the prosperity of the banks- was closely intertwined with the prosperity of the country, but in view of the maintenance of dividends—due to the reasons I have already mentioned —the declaration hid-wine to be regarded as something in the nature of an empty platitude.. . That view, however, is, I fancy, likely to be altered- by the .Position disclosed during the past year.

_ ,....TILE AMERICAN SLUMP. - Not the least interesting_ point to note with regard to the-general developments of the past year is the fact that what at the end of 1929 was regarded as a favourable development proved to be one of the great disturbing influences of the - succeeding year. In the autumn of 1929 most people in the City were rejoicing that the boom in Wall Street had collapsed. It was a boom which clearly had gone ahead of the resources of the American people themselves, while in addition It had taxed the resources of many other countries. -Money rates in New York had been rushed up to such a high level as to attract foreign balances from all over the world, and the high level of our own Bank Rate in the autumn of 1929 was a measure of defence against the monetary stringency in the United States- which was beginning to drain the European markets of credits and to imperil the position of the Exchanges. -It was hoped, therefore, that with the collapse of the American boom there would come such a spell of easy money as to stimulate not merely public securities but trade itself. The expectations of cheap money were abundantly fulfilled, and throughout 1980 there was a general fall in Bank Rates all over the world. It was soon found, however, that the prolonged boom in America and the-subsequent collapse had hit that country with such severity as to effect not merely financial conditions but the general industries of the country. A further impetus, in fact, was given to the general downward trend of wholesale prices, and this in its turn intensified trade depression in almost all parts of the world, the fall in commodity prices hitting Australia, for exaniPle, with great severity.

POLITICAL AND OTHER INFLUENCES.

Moreover, the general shock to confidence given by the crash in the United States was not without its effect in restraining French investors front employing their re- sources abroad, a circumstance which in its turn stimu- lated the great flow of gold to France. To those factors affecting world conditions was added developments at home calculated to impair confidence at every turn: Mr. Snowden introduced a Socialistic Budget with en- larged expenditure which had a depressing influence at the time, and justification for the depression was to be furnished less than a year later by the Chancellor's cry of alarm in the House of Commons uttered during last month. In response to extremists of the Labour Party a Coal Bill was passed by the Commons, the character of which had a gravely disturbing effect upon the industry and in some directions nearly occasioned stoppage on a big scale, and in South Wales did actually occasion a brief stoppage. Throughout the year expenditure on the dole and other " Social Services continued, on a lavish scale and before the end of the year it became known that the demands of Labour extremists were going to be met by the introduction of the Trade Disputes Bill. Under such conditions confidence was shaken throughout the year, and bankers suffered not merely because of unhealthily low money rates, but because of the difficulty of fully employing their resources. In fact, as will-be seen later from an examination of the details of balance sheets much Of the bankers' profits during the year arose either from the realization of Government securities or from the actual holding of long and short term Government investments. In the case of some of the Provincial Banks, and especially those in the industrial areas, acute trade depression was responsible for a great falling off in Advances and it says much for the. skill with which operations were conducted that dividends should have been maintained, and main- tained, moreover, to the accompaniment of satisfactory balance sheets. RISE IN DEPOSITS.

To those accustomed to studying the balance sheets of Banks there is much in the actual figures themselves which throws considerable light upon the circumstances in which the Banks have operated. A year ago when writing on banking conditions in 1929, I had to record. a material contraction in the total of Deposits which for the year showed - a drop of about £41,000,000. Last year, however, as will be seen from the table which follows, the Deposits of the Big Five showed an aggregate increase of about £72,000,000, as compared with the previous year, and of about £93,000,000, compared with the year 1927. At first sight, therefore, it would seem as though there might have been some general expansion in business, and inasmuch as business in Advances generally tends to bring about an increase in Deposits it might, therefore, be sup- posed that the Loan business of the banks had been increased. Such a supposition, however, would be en- tirely erroneous, and, speaking broadly, it may be said that on this occasion the increase in Deposits reflects stagnation

Barclays Bank Lloyds Bank ..

Midland Bank — National Provincial Bk.

Westminster Bank .. DEPOSITS. Dee. 31st, 1928.

£ 335,081,222 352,157,420 394,591,227 290,310,252 294,086,580 Dec. 31st, 1929.

£ 337,439,214 351,644,965 379,622,758 271,712,337 285,160,311 Dec. 31st, 1930.

349,273,283 364,649,397 399,605,549 292,379;793 291,579,675 Total .. .. 1,666,226,701 1,625,579,585 1,697,487,697 District Bank .. 52,254,949 52,240,452 52,443,952 Manchester & County

Bank 19,587,527 18,281,581 17,745,272 Martins Bank 82,932,881 82,620,494 78,562,603 National Bank 37,476,108 37,393,114 36,284,348 Union Bank of Man- chester .. 18,069,360 • 16,798,273 17,861,719 Williams Deacon's Bk. 32,221,394 31,792,588 32,008,887 Total .. 242,542,219 239,126,502 234,906,781

CASH AT HAND AND AT THE BANX OF ENGLAND.

Dec. 31st, 1928.

£ Dec. 31st, 1929.

£ Dec. 31st, 1930.

Barclays Bank 50,413,030 51,850,334 52,509,164 Lloyds Bank .. 42,345,128 44,203,998 42,620,487 Midland Bank 45,440,918 - 46,-918,243 47,219,369 National Provincial Bk. 34,362,652 31,626,945 .33,266,049 Westminster Bank .. • 35,117,593 35,467,196 35,843,864 Total .. 207,679,321 210,066,716 211,458,933 District Bank .. 8,043,459 8,063,750 7,849,197

Manchester & County

Bank .. .. *5,381,751 *4,386,989 *4,615,147 Martins Bank .. 9,121,948 10,332,182 8,870,438 National Bank .. 3,698,033 4,370,015 3,410,661 Union Bank of Man- chester .. .. *6,557,651 *5,514,919 *7,292,869 Williams Deacon's Bk. 3,635,407 3,883,780 3,786,044 Total .. 36,438,249 36,551,635 35,824,356 * Including Money at call and short notice.

MONEY AT CALL AND SHORT NOTICE.

Dec. 31st, 1928. Dec. 31st,' 1929. Dee. 31st, 1930.

Barclays Bank 23,988,400 23,582,200 22,316,100 Lloyds Bank .. 26,819,228 26,484,815 28,990,215 Midland Bank.. .. 27,681,297 21,670,909 21,716,360 National Provincial Bk. 25,920,942 19,413,496 20,298,534 Westminster Bank .. 34,813,607 33,169,823 25,683,550

Total • • 139,223,474 124,321,243 119,004,759 District Bank .. • • 4,724,125 3,857,140 4,409,670 Martins Bank 5,420,745 5,975,000 7,650,000 National Bank *5,499,4® *3,820,091 *2,844,669 Williams Deacon's Bk. 2,871,374 3,412,190 2,488,863 Total .. .. 18,515,664 17,064,421 16,493,202 * Including Stock Exchange Loans and Treasury Bills.

rather than activity in trade, with a tendency on the part of the public to keep large suins on deposit. This point is emphasised by the fact that as noted in a subsequent para- graph Loans and Advances showed a heavy decline for the year. To some extent, however, the increase in Deposits is explained by the .great rise in Bankers' Investments which in the aggregate showed an expansion on the part of the Big Five of about-142;000,000; When in the aggre- gate bankers are large buyers of investments they are, of course, in effect buying from the public, or in other words from their own customers, and the tendency, is to add to Deposits. When, therefore, allowance is made for this movement in Investments it will be seen that the actual gain in Deposits is not very great and such gain as has occurred has probably been partly due to lack of employ- ment for balances and lack of confidence, Loans and Advances, as already stated, haVing fallen.

BANKING IN THE PROVINCES.

From the foregoing it will be seen that while the Deposits of the Big Five increased substantially during the year, the position was somewhat different as regards the Provincial Institutions where there was a decline to note of about £4,000,000, and that, notwithstanding the fact that this same group of Banks showed an increase of about £5,000,000 in its holding of investments. The three Banks which were an exception to the fairly general decline in Deposits in the Provincial list were the District, the Union Bank of Manchester and Williams Deacon's, the last named institution, of course, now being affiliated with the Royal Bank of Scotland.

LOANS AND ACCEPTANCES LOWER.

Judged from the standpoint of Loans and Advances, banking conditions in 1928 and 1929 had displayed a rather better tendency, but the setback in 1980 was very. pronounced. Thus, for 1927 the aggregate of Loans and Advances made by the Big Five was £839,000,000. In the following year it had expanded to £869,000,000, and in 1929 it had risen to £879,000,000. In 1930, however, there was a relapse to below even the level of 1927, the latest total being £829,000,000. Speaking at the annual meeting of the Midland Bank the Chairman, Mr. Reginald McKenna, remarked that for the first time for many years the legitimate demand for banking

LOANS AND ADVANCES.

Dec. 31st, 1928. Dec. 31st, 1929.

£

Dee. 31st, 1930.

£ Barclays Bank 168,620,475 172,920,488 168,479,837 Lloyds Bank .. 187,155,085 191,752,253 175,907,909 Midland Bank.. .. 214,050,972 210,374,230 203,582,971 National Provincial Bk. 150,523,520 156,678,357 149,492,770 Westminster Bank .. 149,098,900 147,350,592 131,950,516 Total .. .. 869,448,952 879,081,920 829,414,003 District Bank .. 23,249,695 24,327,283 20,577,119 Manchester & County

Bank 10,995,681 10,952,898 10,200,956 Martins Bank 42,600,478 42,240,172 37,445,477 National Bank 15,393,677 16,093,008 16,377,128 Union Bank of Man- chester .. 9,258,142 8,926,803 8,832,515 Williams Deacon's Bk. 17,642,886 16,825,826 15,590,259

Total .. •

119,140,559 119,371,990 109,023,454

ACCEPTANCES, ENDORSEMENTS, &C.

205,758,415 154,466,346 108,438,344 2,464,878 2,400,469 1,071,945 560,072 499,102 139,426 10,949,041 7,184,161 5,599,786 57,359 34,669 25,674 713,185 633,788 518,050 1;520,117 1,023,094 736,522 16,264,652 11,775,283 8,091,403 * Acceptances.

guatantees and other obligations.

accommodation " has been below what we have been prepared to grant," and the causes for this falling off in demands for accommodation, namely, local and world trade depression, had a similar effect upon another important aspect not only of banking activities but of profit _earning, namely, the volume of Acceptances.

Dec. 31st, Dec. 31st, 1928. 1929.

£ £

24,847,317 21,991,928

f *13,347,012 *8,603,470 1 $6,994,172 t43,622,815 74,441,134 37,474,366 19,563,740 15,174,188 26,538,040 . 27,599,579 Doc. Slat, 1930.

12,710,524 *5,939,798 t36,573,554 25,310,193 10,089,723 17,814,552 Barclays Bank Lloyds Bank ..

Midland Bank .. National Provincial Bk. Westminster Bank ..

Total District Bank . ' Manchester & County Bank Martins Bank - National Bank Union Bank of Man- chester .. Williams Deacon's Bk.

Total ..

t Endorsements, The Acceptances of the Big Five, showed an aggregate fall of about £46,000,000, compared with 1929, and nearly £100,000 when compared with 1928 when, owing to the dear money in the United States, there was a great deal of activity in this form of business in London. If, said Mr. McKenna, any additional evidence were required of the world trade depression, it could be seen in the fall in contingent liabilities in respect of Banking Acceptances and confirmed credits and engagements. TREASURY BILL OPERATIONS. 4 In view of this great shrinkage under the head of Loans and Advances, and also in Acceptances,, and having -regard also to the increase in Deposits, the reader may wonder in what- direction the bankers employed their increased resources, because, as will be seen from the tables already given, there was no increase in the idle cash holdings so that it is necessary to look in other directions to see -where the public's deposits were placed. The two following tables giving the totals of Bills discounted and Bankers' Investments may be said to furnish the main explanation. Dealing in the first place with the increase of about £92,000,000 under the head of Bills discounted, the uninitiated may rightly ask how it comes that with slackening trade and the great falling off in Acceptances there should apparently have been an increase in the volume of Bills. The explanation is undoubtedly to be found in the fact that the increased holding of Bills was largely in the form of Treasury Bills. In some respects, however, this again, is a little sur- prising in view of the fact that the actual total of Treasury Bills outstanding at December 31st of last year was considerably smaller than on the same date of 1929. It is probable, however, that during the year a change of ownership took place and that large volumes of Treasury Bills hitherto held by Government Departments or the Bank of England may have passed over to the joint stock banks. Indeed, that would seem to be the only explanation possible.

BILLS DISCOUNTED.

Dec. 31st, 1928.

£

Dec. 31st, 1929.

£

Dec. 31st, 1930.

£

Barcivii Bank .. 38,258,570 36,966,668 50,901,977 Lloyds Bank .. 49,281,472 39,625,276 53;733,112 Midland Bank.. 63,347,503 58,783,657 83,922,557 National Provincial Bk. 43,547,739 28,190,610 51,061,089 Westminster Bank . . 36,626,735 32,501,317 48,759,717 Total .. 231,062,019 196,067,528 288,378,452 District Bank .. 5,146,317 5,029,779 _ 6,798,984 Manchester & County

Bank 849,083 570,558 559,314 Martins Bank .. 3,702,147 3,862,087 2,667,145 National Bank 2,292,965 2,311,260 1,891,315

Union Bank of Man- chester .. • •

619,912 469,465 429,427 Williams Deacon's Bk. 3,551,272 2,374,072 2,492,730

Total .. • •

16,161,696 14,617,221 14,838,815 Dec. 31st, 1930.

£ 56x087,646 52,640,738 38,671,557 38,327,813 50,616,095

236,343,849 16,651,545 4,221,266 18,677,148 15,375,903 2,299,179 8,306,444

65,531,485 r

NOTE.—These figures do not include investments in affiliated banks. •

PuoFrreBLE INvEsTmErcrs.

Then, as will be seen from the last of the foregoing tables, the total of long-dated investments held by the banks also advanced materially, and although from time to-time some of the banks-urelmown -to have- effected

INVESTMENTS. Dec. 31st, 1928.

£

Dee. 31st, 1929.

£

Barclays Beak 58,546,192 52,736,790 Lloyds Bank .. • • 38,108,681 37,134,127 Midland Bank.. 36,868,697 32,928,890 National Provincial Bk. 36,975,699 35,823,629 Westminster Bank .. 38,438,974 37,923,453 Total 208,938,243 196,546,889 District Bank .. 14,786,851 14,826,830 Manchester & County

Bank .. .. 4,207,647 4,221,639 Martins Bank .. • • 25,104,768 17,807,868 National Bank • • 15,130,928 14,556,259 Union Bank of Man- chester • - 2,637,659 2,877,592 Williams Deacon's -Bk. 5,349,677 6,017,161 Total .. .. 67,217,530. 60,307,349

.extensive realizations, the net result was a considerable addition to the actual holding, while since the year closed there have been indications that the banks have added still further to their -holding of British -Government securities. Nor, of course, is it surprising that the banks should have taken a foremost part in acquiring gilt-edged stocks for they are, or should be, iii a specially advan- tageous position to judge as to monetary prospects, and it is monetary conditions more than anything else which govern the prices of British Funds and kindred stocks. One thing at least seems reasonably certain, namely, that but for the profitable holding of investments, bankers' profits for the past- year would have shown an 'even greater reduction. Indeed, as Mr. Beaumont Pease said quite frankly at the annual meeting of Lloyds Bank, the directors were somewhat guided in their conservative dividend policy by a recognition of the fact that the decline in strictly normal banking profits had been very great. - • ARTHUR W. KIDDY,