Trustee Savings Banks

News and views from New Zealand

Dennis Dorney

I am not aware of ever reading about Trustee Savings Banks in the ERA newsletters. They appear to have been true Banks in the sense that they possessed all the money creating capacity of other banks and were owned by shareholders. The essential difference is that the shares were owned by the depositors who paid an up-front fee to join the bank. The fee, which was modest, became their share, rather as in Credit Unions – which however don’t have full banking privileges. The shares could not be traded on any stock market but remained with the owner for as long as he/she was a member of the Trustee Savings Bank. Also the shareholder had no voting rights or any power to influence decisions made by the Directors, who were appointed as trustees (hence the name) on a voluntary basis. Since the Directors presumably took only some kind of honorarium, any profits were distributed for Charitable purposes.

The first trustee savings bank was established by Reverend Henry Duncan of Ruthwell in Dumfriesshire for his poor Parishioners in 1810. After a slow start that – and other Trustees Banks – prospered and became the model for similar Banks which were also created early in New Zealand’s history. As New Zealand’s population grew, and people became more mobile, Trustee Banks agglomerated into larger and fewer units until they became an attractive take- over target for the conventional Banks.

Of particular interest to me is the history of the first such Bank in Dunedin, the Dunedin Savings Bank. The establishment of the Bank was sanctioned by the Government under the Savings Bank Act 1858, which however failed to make provision for the disbursement of surplus profits for charitable purposes, which was a key objective when the Bank was established. This was rectified in 1878 with the passing of the Dunedin Savings Bank Profits Bill. The Bank’s first gift of 7,515 pounds was donated to the Otago Benevolent Trust in 1879, which in today’s terms is over $1 million. Interestingly an amendment to the Act in 1885 allowed Trustees of Savings Banks to lend up to one third of its deposits to local authorities, limited the Fractional Reserve Ratio to 9:1 and capped the permissible interest rate. What would they say to that today?

For the next 110 years the Bank steadily grew and with expansion came the establishment of branches, the first in South Dunedin in 1925. To reflect its Otago wide reach, the Bank changed its name to the Otago Savings Bank and subsequently became Trust Bank Otago, reflecting the changes that were occurring elsewhere in New Zealand.

In 1988 all eleven NZ savings banks were corporatised by the government under the Trustee Banks Restructuring Act 1988 and ownership of each bank was vested in a regional community trust. At this stage two banks left the group, Taranaki Savings Bank (TSB) becoming a successful conventional Bank. The remaining 9 banks merged into one bank (Trust Bank New Zealand) although they continued to trade under their regional names. The community trusts remained as individual shareholders in the new organisation, with shares distributed as a percentage of shareholder funds. The corporatisation would appear to have changed these banks from being owned by depositors to being owned by shareholders who could freely buy and sell shares. The Otago Community Trust’s 100% shareholding in Trust Bank Otago Ltd was exchanged for a 13.5% holding in Trust Bank NZ Ltd (TBNZ).

In 1994 the Otago Community Trust sold half its shares in TBNZ, presumably on the open market and in 1996 sold the remaining half to Westpac which then purchased TBNZ for $1.2 billion dollars, which would appear to have valued the Community Trust at about $ 150 million. The sale ended a 132-year ownership of trustee savings banks by the NZ community. With the demise of the Dunedin Savings Bank and its descendents, the money obtained from the sale is now controlled by the Otago Community Trust, which continues to distribute funds (in excess of $115,000,000 at the last count). to ‘charitable’ groups, including sports, which in NZ is clearly regarded as a ‘charitable’ purpose.

What a travesty it is that trustee savings banks in New Zealand that were conceived with such benign intent have been sold off in one hit to a commercial bank whose sole aim is profit. What a chance was missed when those savings banks amalgamated and left themselves exposed to takeover. Now the remains of their assets are used to support causes of doubtful merit, when instead we could have had a publicly owned Otago Bank managed at minimal cost and its profits returned to the benefit of all? Why should the Savings Bank not have used its money-creating ability to repay, at low interest, all the debts of our local government (currently standing at $NZ600 million)? And why should the Province ever in future need to borrow from the rapacious private Banks?

Dennis Dorney is an ERA member living in the Otago region of New Zealand