When a politician can lambast your entire industry for its shockingly poor behaviour and earn applause rather than laughter, you’ve got a problem.
But that was the situation National Australia Bank’s new chairman, Phil Chronican, found himself in at his company’s annual shareholder meeting on 18 December as the Australian banking industry’s year from hell tottered towards its end.
“You are the unacceptable face of capitalism because you have failed to obey the law,” former Labor senator Chris Schacht told Chronican and the NAB board. “You are the face of unconscionable greed.”
For the banking industry, it has been a bad end to a year that started with some promise.
In February, the sector seized on the release of the final report of the banking royal commission as an opportunity to draw a line under years of scandals – including charging dead people fees, signing up vulnerable people to useless insurance and systematically undermining the retirement nest eggs of workers through high charges and poor investment returns.
While commissioner Kenneth Hayne was damning of banking’s culture of greed, the report did not contain harsher measures some in the industry feared, and company share prices jumped in relief.
But in the past few months plans by some in the industry for a quick return to business as usual, which included lobbying against responsible lending rules set down by the corporate regulator, have fallen to pieces.
Westpac, which had been leading the push, looked to be gaining ground after a court victory in August against the corporate regulator, the Australian Securities and Investments Commission, over responsible lending standards.
Asic has appealed against the ruling, and in late December signalled it would not be backing down on responsible lending standards by launching legal action against Volkswagen’s finance arm over almost 50,000 car loans it says weren’t properly assessed.
But any hope the back to business project might succeed was smashed to smithereens in November when Austrac, the agency responsible for monitoring the flow of money through the economy, hit Westpac with a mammoth lawsuit alleging millions of breaches of anti-money laundering laws, including failing to detect or stop several thousand transactions consistent with child exploitation in the Philippines.
Money for paedophiles. A new low for an industry already neck deep in muck.
Unsurprisingly, Westpac’s chairman, Lindsay Maxsted, and chief executive Brian Hartzer handed in their resignations.
In the week before Christmas, the corporate cop shovelled more of the smelly stuff into the faces of executives at NAB in a federal court lawsuit alleging it broke the law more than 10,000 times by charging customers fees for services they never received and failing to keep proper records of financial advice.
NAB is also facing the prospect of action against it by Austrac, which in the past few years has emerged as the banking sector’s most feared regulator due to the seriousness of the laws it administers and the huge fines it can levy, which can climb well into the billions of dollars.
All this was no doubt weighing on the minds of Chronican and NAB’s chief executive, Ross McEwan, during the recent AGM.
Reflecting the turmoil in the sector this year, neither has been in the job for long.
McEwan became CEO just three weeks ago but his scant time in the top job wasn’t enough to save him from Schacht.
It was a repeat performance for Schacht – six days earlier, he had delivered an even angrier speech to Westpac’s top brass at its annual meeting at the same venue, Sydney’s International Convention Centre.
Schacht said he had been a NAB shareholder since 2003 and attended most of the bank’s AGMs since then.
But he hadn’t detected an improvement in the bank’s management.
“Every time there was a scandal, the same words that you said today and the same words of Mr McEwan – we’ll be better,” he said.
“We will get on top of it.
“But next year another bloody scandal turned up, something else went wrong. It has not changed, and that is the worrying thing about the bank.”
Standards in banking were even lower than in politics, he said.
“I gotta tell you, if I had done 1% of what this board had allowed to happen, I would have been thrown out of Parliament House, drowned in Lake Burley Griffin and everyone would have cheered.”
Schacht is right that Australia’s banks are no strangers to scandal.
It’s arguable a cowboy culture in the industry stretches as far back as the Victorian land boom of the 1880s and 1890s, when soaring property prices and easy credit provided by a string of fledgling banks and building societies helped create a speculative financial bubble – the pricking of which saw fortunes destroyed and corrupt premier James Munro bankrupted and beaten in the street.
Westpac, then known as the Bank of New South Wales, did not escape unscathed – it lost out after lending money to some of the speculators.
The big banks – ANZ, Commonwealth, NAB and Westpac – may be nicknamed the “four pillars” of the Australian economy, but they have also behaved in a less than solid fashion.
Over the decades, they have more or less taken it in turns to be the bad bank.
In 1992, Westpac, Australia’s oldest bank, turned in the country’s biggest corporate loss at the time, of $1.56bn, after writing off $2.6bn in disastrous loans on commercial property. The AGM went for two days and the managing director, Frank Conroy, resigned.
NAB hit trouble in the “rogue trader” affair of the early 2000s in which four foreign exchange traders trousered hefty bonuses by hiding hundreds of millions of dollars in trading losses. The scandal eventually cost the head of chief executive Frank Cicutto.
Australia’s banks survived the global financial crisis in good financial shape, thanks in part to the Rudd government guaranteeing their debts, but nonetheless ANZ managed to get itself into trouble by backing stockbroker Opes Prime.
Opes Prime collapsed in 2008 owing $1bn, including $650m to ANZ, after efforts by executives to cover up a $300m hole in its accounts failed.
The affair was a wild ride involving fast cars, members of Melbourne’s underworld and colourful Sydney lawyer Chris Murphy, whose account was at the centre of the collapse.
ANZ also loaned about $1bn to Indian business couple Pankaj and Radhika Oswal to build a fertiliser plant on the Burrup Peninsula. The loan went bad amid allegations of fraud and the bank had to pay the couple more than $200m to settle a highly embarrassing lawsuit.
But more recently the banks have stopped taking it in turns to misbehave, with scandals coming so thick and fast it’s almost impossible to keep up.
They have all been tarred by the financial planning debacle that was one of the main drivers behind the royal commission last year, although initially misconduct at CBA was most prominent.
CBA also led the way at getting in trouble with Austrac, paying $700m in June last year to settle a case in which the regulator accused it of more than 53,000 breaches of the law.
All big four banks tried to rig a key interest rate benchmark, the BBSW, to their benefit and against the interests of their customers – although Westpac copped the brunt of bad publicity because it made the quixotic decision to fight a lawsuit brought by the Australian Securities and Investments Commission rather than settle, as the others did.
And there is more to come.
Company accounts are normally pretty dry reading but buried deep in NAB’s annual report is a list of looming problems that provides a good summary of what’s ahead for the entire sector in the coming 12 months.
Note 29, “contingent liabilities”, lays out the problems that NAB knows it has but on which it has so far been unable to put a price tag.
These include a class action in the US over the BBSW, lawsuits in the UK over business loans its former subsidiary Clydesdale Bank wrote there and, of course, an Austrac investigation.
In addition to Asic’s fee-for-no-service lawsuit it is sweating on the outcome of another industry-wide investigation by the corporate regulator into junk credit card insurance, an issue over which it faces another class action.
It is also waiting on the outcome of Asic lawsuits over service fees wrongly charged by its superannuation trustee company, Nulis, and an introducer scheme that saw gym owners and hairdressers get kickbacks for bringing homeloan customers to the bank.
On top of that, it is also being audited by the Taxation Office over its claims for deductions due to research and development spending.
The other banks also face more pain at the hands of an Asic whose spine has been stiffened by the royal commission.
Costs across the industry of compensating customers it has ripped off and fixing up long-neglected systems designed to make sure it doesn’t happen again are projected at $10bn.
And they could well go higher.
On Thursday, federal court judge Michael Wigney hit Westpac with a fine of $9.15m over the behaviour of just one financial adviser who earned fat commissions by tipping his clients into inappropriate superannuation and insurance products created by the bank.
But those kinds of stings are dwarfed by a monster fine, likely to be in excess of a billion dollars, that Westpac is expected to pay to settle the Austrac case.
The bank seems to have lost some of the anti-regulator attitude that saw it fight lawsuits tooth and nail and prompted Hartzer to complain at a meeting last year with the prudential regulator that it was “unfair” that all the banks had to do a comprehensive review of their cultural failings because “nothing has gone wrong to CBA’s scale”.
Well, it has now.