Turning now to the profit and loss account, you will find that our net profits for the year amount of £335.- 309, against £491,065 a year ago, a decrease of approximately £156,000. and I would also point out, although possibly it is quite unnecessary, that the figure of £335,309 includes a transfer from contingences account to meet depreciation on Government securities. I shall now endeavour to explain to you the adverse factors that have brought about this reduction in profits, There has been a decreased volume of trade in various spheres where we operate, but it is the deteriorating business conditions in China and Japan that have been our chief concern. Most of you have followed events there closely, and I need not elaborate on these at the moment.
I need only say that ordinary commercial trading, which it has been our business to finance, has in the past 18 months been seriously disturbed. If this seemed to be a passing phase, or if we could visi return to mote normal conditions in the near future, we would be happier. I refer later on to the introduction of a new currency into North China, and the endeavour to force unwilling traders to confine their finance dealings to Japanese banks in the new currency. This is a portent of terference with normal trading which we cannot ignore in relation to the future success of our business in China, and particularly North China. and P. & O. Banks have gradually been ce-ordinated and harmonized.
The P. & O. Bank, with their head ofice in London and with branches in India, Ceylon, the Straits Settlements, and China, covered a field already served by branches of the Chartered Bank. Under conditions of expanding trade between Great Britain and these territories, and between these territories themselves, there would probably have been ample room for the two institutions. With adverse economic conditions, however, such as we have had since 1921, and, as far as we can judge, without prospects of substantial betterment in the near future, your directors have naturally had under serious consideration for some time the desirability of the actual merging of the business of the P. & O. Bank into the business of the Chartered Bank, thus reducing overhead expenses and also eliminating a certain amount of inevitable competition between the two institutions. A decision to do so was finally taken in Novemeber last. As a preliminary step to this end the contract above referred to was entered into. The Chartered Bank offered to buy the undertaking and assets of the P. O. Bank for £2,594,160, which was the amount of the paid-up capital of the P. & O. Bank. Stripped of legal phraseology, this meant that the Chartered Bank offered to buy the 18 per cent. of shares held by the other shareholders at their face value, viz, £10 per share net. The offer carried with it the obligation of the Chartered Bank to take over the commitments of the P. & O. Bank, and was subject to the condition that the P. & O. Bank should be wound up voluntarily.
At the meeting subsequently held this offer was unanimously accepted by the shareholders of the P. & O. Bank present, without the votes of this bank being used in any way whatsoever, You will, I feel sure, be glad to learn that practically the whole of the business hitherto conducted by the P. & O. Bank has been transferred to the Chartered Bank, and this accretion to the volume of our business will I hope, prove of considerable value to this Bank in the future.
In view of our offer of £10 per share to other shareholders, some of you may consider that our own holding of P. & O. Bank shares at December 31, is overvalued to the extent of £179,728, because it appears in our balance-sheet at cost. I would remind you, however, that liquidation of the bank was only taken in hand last month, and will take some time The actual value of the assets is, therefore, not yet determined, and any shortage in our valuation will naturally fall to be dealt with in our 1939 accounts.
I should perhaps particularly refer now to one of the assets of the P.
O. Bank which we have taken over, and which will hereafter appear in our own future balance-sheets as a separate item. The P. & O. Bank acquired in 1921, 23,403 (931 per cent.) of the ordinary shares in the Allahabad Bank, Ltd., and these are now being transferred into the name of the Chartered Bank.
The Allahabad Bank, Lid, is an Indian institution which has its head office in Calcutta (formerly in Allahabad) and 36 branches and agencies in India mostly north of a line Calcutta-Bombay. It was founded in 1865, and has a most excellent record for conservative and efficient management. The called-up capital is rupees 35% lakhs, of which.
Ris,16,000,000 is in ordinary shares of Rs.
100 each fully paid.
450,000 is in ordinary shares of Rs.
100, Rs. 50 paid 15.00,000 is in preference shares of Rs.100 each fully paid The reserve fund is rupees 50 lakhs.
The very close relationship that existed between the P. & O. Bank and the Allahabad Bank is, I am very pleased to say, being continued with ourselves.
I should perhaps add that the Allahabad Bank has its own Board in India, and is managed as an entirely separate institution.
Further, during the last two years there has been a very substantial fall in the price of Government securities, of which our holdings, as I have mentioned in previous years, consist largely of short-dated stocks. Here again it is not possible to be optimism tie about the future.
With these considerations in view your directors, after making the necessary provision for bad and doubtful accounts out of current profits, decided that the current profits for the year should be charged with the amount required to write down securities to market value and to transfer from contingencies account the balance required to provide for the proposals submitted to you.
I need hardly say how much my fellow directors, the management and I regret this proposal of a reduced dividend, but I am sure that our conservative policy will in the circumstances receive your full approval.
I sounded a note of warning in my speech last year regarding.the difficulty of working profitably in China and Japan, and the reduction of our interim dividend from 7 per cent. to 5 per cent. in September was therefore probably not altogether a surprise to you.
P. & O. Banking Corporation, Ltd.
You will observe in the balance-sheet against our holding of P. & O. Banking Corporation. Ltd., shares a note stating that "A contract has been entered into for the purchase of the undertaking of the P. & O. Banking Corporation, Ltd., with effect from February 1,"
You are aware that in 1927 we acquired by private agreement a controlling interest in the P. & O. Bank by a purchase of 75 per cent. of the share capital. Since then we have bought further sundry shares that have been offering in the open market, with the result that on December 31, last we held about 82 per cent. of the capital, Meantime the P. O. Bank continued to be carried on as a separate entity with its own directors and management, but, as I mentioned a year ago, the policies and joint interests of the Chartered
Text read from the printed page and cleaned; old type leaves the occasional error.