A.—s.

4

to convert, whilst it enabled them to obtain nearly the full amount of money, made them also able to offer to investors, in conjunction with the management of the Bank of England, an attraction which made the loan a success. The Agents took the very best advice, and fixed the terms at what they believed to be the highest consistent with success. At nearly the last moment, they had to reduce the price 10s. per cent, in accordance with urgent advice; and after the announcement was issued, they had to give the assurance of three years' respite from borrowing. It is unfortunate that the terms of conversion which we had to offer to attract .persons to take up the loan, have been confounded in the colony with the terms upon which a conversion would be offered when no obligation to convert exists. It is not to be wondered at that, under this misconception, and in the absence of any specific information as to the exact benefit to be derived from the conversion of debentures into inscribed stock, the members of the House of Representatives decided not to allow it to proceed. You will, I hope, forgive me for saying that, in the singularly able speech in which you admirably pointed out a number of indirect advantages to arise from conversion, you failed to deal with the main point on which the success of the operation depends. You were evidently puzzled by the consideration of how the conversion would benefit both the colony and the bondholders. The explanation is very simple. All conversions of high-rate-of-interest stocks to stocks bearing lower rates of interest, have a tendency to success in the London markets, because investors are willing to give a relatively higher rate for securities which, being at a discount, have apparently better prospects of increased value than premium securities which must be paid off at par sooner or later. On the advantage taken of this fact by Mr. Eitzherbert, depended the success of the conversion in 1867, when for one class of debentures another was substituted. In the present case, a second element intervenes. You do not merely give low-interest debentures for debentures bearing^a higher rate,, but you give, for debentures, inscribed stock bearing a less rate of interest, with liberty, as often as the holder likes, to convert into debentures and back again into inscribed stock. This stock, moreover, is managed by the Bank of England. Rightly or wrongly, wisely or unwisely, English investors regard this inscribed stock as more valuable than mere debentures. It may be fancy or judgment, just as other stocks giving the same returns are of different selling values : but the fact remains that Inscribed New Zealand Stock, yielding the same annual returns, and making allowance for paying off on similar conditions, commands a higher value than debentures. This is easily substantiated by the relative values since the issue of inscribed stock. Under ordinary circumstances, a new loan is worth less than an old one, because the latter has become more placed in the hands of investors. Nevertheless a study of the monthly returns of prices sent to you will show you, that the five per cent, debentures of the last loan have always been worth more in the market, after allowing for the interest accrued in each case, than other five per cent, debentures of the colony The only explanation of this is that, notwithstanding the loan is a newone,it is worth more because of the option to convert its debentures into stock inscribed at the Bank of England. This proof of the relative value of New Zealand debentures and inscribed stock was not put forward during the debate: whilst in the opposite direction, Mr Ballance argued most cogently that inscribed stock did not seem to be more valuable in London than debentures, because in the case of the Canadian loans the portions represented by debentures and those represented by stock were always quoted at a price within a small fraction the same. It is not necessary to explain this away by pointing out that Canadian stock is not inscribed at the Bank of England, and is not open to the advantage of exchange into bonds to bearer, and back again into stock; because the simple answer is that the difference in value between the two portions of the Canadian loans can only be fractional, as the power constantly exists to exchange debentures under each loan into inscribed stock. Mr Ballance was evidently unaware of this fact. He is much too conscientious a speaker to use an illustration in which he knows there is a flaw As you are aware, the Loan Agents had placed confidentially before you plans which showed how they proposed to make the conversion a profit to the colony A significant proof of the estimation in which inscribed stock is held here, is to be found in the fact that the leadingLondon brokers lately memorialized the Agents-General of the various colonies, urging them to move their Governments to convert a portion of their debentures into inscribed stock, and especially pointing out the increased value which would be given to their securities. I attach a copy of this remarkable document. I must now intrude upon you some remarks concerning myself. You did not propose to the House to pay me for negotiating the loan, and you give me to understand that it would have been useless to do so, because, as I understand, you consider my position was similar to that of the previous Agent-General, who had acted as Loan Agent without, extra remuneration. I cannot but believe that if you will view my position in its proper and true light, and if the matter were so placed before the House and the country, the justice of my claim to extra remuneration would be admitted. In order to make my position clear, it must be remembered that I was " rather holding office for the convenience of the Government." I use your own words in reference to a somewhat later period, the time of the elections, but they apply equally to the time when the loan was negotiated. At that time, I had definitely indicated I could not continue to be the Agent-General on the only terms the Government were willing to agree to, and had I not fully trusted to the Government, as I did, to see justice done to me, I might have secured myself.

See Enclosure.