In September 1972, with inflation at 7.3% and the Bank Rate at 6%, the Bank Committee were concerned that it was essential to increase the rate of interest payable to its depositors, if funds were not to be lost to its competitors. Accordingly, the firm of R Nivison & Co were requested to review the Bank’s investments, and to make recommendations that would increase the Bank’s income sufficiently to enable such an increase to be paid.
The Bank’s Investment Sub-Committee met on Monday, October 2nd 1972 to consider a schedule of proposed investment switches suggested by Nivisons. Present were Alderman Sir Joseph Balmer (Chairman); Alderman W R Lewis; Councillor Mrs Brown; and Mr Potter from Nivisons. The Minutes of the meeting recorded that:
The Sub-Committee were informed by the Chairman that the reason for the necessity of urgent consideration to the foregoing proposals relating to the disposal of shares and new investments was that it was now proposed, subject to the consent of H M Treasury, to increase the rate of interest paid to depositors in the No 1 Department to 4½% with effect from 1st December, 1972. The proposals referred to in the foregoing schedules would enable this to be done.
Mr Potter, representing R Nivison & Co reported that the suggestions made in the foregoing schedule were now possible in view of the fact that it now seemed clear to his firm that a prices and incomes policy was about to be introduced, holding out real hope of making the level of inflation at least tolerable. He pointed out that although at first sight these proposals seemed to effect the liquidity ratio of the Bank adversely, in fact the maturity dates of investments of the Bank were so spread that such effect would be minimal. He recommended that of the two alternative buys suggested in the schedule, the Treasury 8½% 10/7/1984/86 should be purchased.
The Sub-Committee gave careful consideration to all the proposed transactions and agreed thereto, specifying the purchase of £1,313,188 Treasury 8½% 10/7/1984/86 stock as the most favourable of the two alternatives offered as set out in the above schedule.
RESOLVED: That it be recommended to the Bank Committee that the action of this Sub-Committee in agreeing to the proposals referred to in the foregoing schedule and above relating to the disposal of shares and new investments and in authorising the Treasurer of the Bank to give effect thereto be approved and confirmed; further, that the Town Clerk be authorised to sign and affix the Corporate Seal to documents in connection therewith.
Resolved: That the schedules be approved.
Allowing for the fact that the Sub-Committee chose to purchase additional Treasury 8½% 1984/86 (despite that stock having a later maturity date than the originally scheduled Treasury 8½% 1980/82), the switches resulted in:
- a capital gain of £1,000 on the sale of the 4 holdings;
- the value of investments increased by £120,088
- annual income increased by £197,156
However, based on No 1 Deposit balances of £55-million, the ½% increase in interest payable to depositors would have resulted in an annual cost £275,000.
|
SALES |
|
|
Capital |
| |
|
£ million |
|
Proceeds £ |
Gain £ |
Loss £ |
Gross Income £ |
|
2 |
British Transport 4% 1972/77 |
1,701,308 |
144,400 |
|
80,000 |
|
1.5 |
Exchequer 5% 1976/78 |
1,259,826 |
|
117,000 |
74,500 |
|
3.7 |
Funding 5¼% 1978/80 |
3,107,033 |
|
52,000 |
194,037 |
|
3 |
Funding 6% 1993 |
2,138,252 |
26,000 |
|
180,000 |
|
|
|
£8,206,419 |
170,000 |
169,000 |
528,087 |
|
BUY |
|
|
|
|
£ million |
|
Costs £ |
Gross Income £ |
|
1.8 |
Treasury 8½% 1984/86 |
1,716,554 |
148,866 |
|
* 1.3 |
Treasury 8½% 1980/82 |
1,283,972 |
108,519 |
|
3.1 |
Treasury 8½% 1980/82 |
3,110,532 |
262,896 |
|
2.2 |
Treasury 9% 1994 |
2,212,339 |
201,860 |
|
|
|
£8,323,397 |
722,141 |
|
* or 1.3 |
Treasury 8½% 1984/86 |
£1,287,082 |
£111,621 |
Note: Present holding £906,604.96 Treasury 8½% 1980/82