Bryce Edwards: Dodgy banks under scrutiny

Bryce Edwards: Dodgy banks under scrutiny

The sudden departure of ANZ CEO David Hisco this week has been sold as the bank having high standards of accountability. The intention is obviously to reassure the public, customers, shareholders, regulators and the politicians that all is well, and the local board of ANZ has everything under control. But not everyone’s convinced. And there are increasing questions about the wider banking sector and whether a Royal Commission of inquiry is needed.

There continue to be so many unanswered questions about Hisco’s departure from the ANZ, and for many journalists the story just doesn’t seem to add up. For example, writing on the Interest business website, Gareth Vaughan says The scale of departing ANZ NZ CEO David Hisco’s public humiliation by his employer doesn’t fit the crime he’s said to have committed.

He wonders “why wasn’t some agreement reached that didn’t require him to be publicly thrown under the bus?” But here’s his main point: “it’s hard not to wonder if there’s more to Hisco’s departure than publicly claimed by ANZ. Whilst undoubtedly a bad look, Hisco’s alleged conduct is hardly the crime of the century. Especially not for a CEO who must have met his shareholder’s financial expectations over almost a decade, and who has worked for ANZ for 39 years.”

Like other journalists, Vaughan suggests that it had more to do with a recent, more substantive, scandal in which ANZ was in huge trouble with the Reserve Bank for not following some important lending rules: “Hisco’s tenure as ANZ NZ CEO was certainly blotted recently with news the bank was being censured by the Reserve Bank, which also revoked ANZ NZ’s accreditation to model its own capital requirements for operational risk, citing a persistent failure in controls and the director attestation process at the country’s biggest bank that dates back five years. The attestation failure is a big deal… However in Monday’s press conference Key blamed a junior staffer for the events leading to the Reserve Bank censure.”

John Key’s role in all of this – as Chair of ANZ NZ, and Hisco’s executioner – is being focused on by a number of journalists. For Hamish Rutherford, Key’s performance on Monday to explain Hisco’s departure was very impressive, but in reality “Key is starting to look like an advertisement for stronger regulation” – see: ANZ is building a case for stronger bank regulation.

In terms of the scandal involving ANZ’s problems with the Reserve Bank, Rutherford was alarmed to see “his blithe dismissal of concern about the way ANZ’s board handled itself around its failure to discover that it had been using an unauthorised model to calculate part of its operational risk model, since 2014, without knowing about it”.

Rutherford sees Key’s casual dismissal of the details of the serious failings of ANZ as actually making it more likely that stronger regulation will result: “It all sounded pretty plausible in real time, but Key’s performance has surely put both the organisation he heads, as well as the industry, under more scrutiny. After all the drama of the Royal Commission into the financial services industry in Australia, everyone in New Zealand banking circles is aware that the Reserve Bank is sensitive to claims that it is a light touch regulator which is being gamed by the money boys. ANZ might believe its board was entitled to rely on what it had been told, but no one else has been held responsible for the mistake.”

And now the Reserve Bank is under scrutiny for its regulatory rule of the banks, particularly for allowing ANZ to get away with flouting the rules for so long. According to Rutherford, Finance Minister Grant Robertson will very interested to ascertain if the Reserve Bank’s regulations are too light: “Robertson will soon move to the second stage of a review of the Reserve Bank, with this one looking at whether or not the current regime under which it regulate banks – which to a large extent is based on trust – is adequate.”

The best single article examining John Key’s role in the multiple ANZ scandals has been written by Bernard Hickey, who suggests that Hisco’s axing is an attempt by Key to stave off other resignations (including his own) and to generally prevent the sort of scrutiny that might lead to a Royal Commission of inquiry being established – see: The smiling assassin returns for his biggest hit.

Hickey reminds us of Key’s previous modus operandi as prime minister of “quickly and cleanly cutting out people who he saw as having failed or erred, and were dangerous to National’s success in government.” He suggests that the same ruthless leadership style is on display here, and that “Hisco represents Key’s most significant engineered exit” yet.

Here’s Hickey’s conclusion: “Key’s removal of Hisco was the least he could do to protect the bank, to show leadership for the big four banks’ reputations here, and to protect his own position, especially in the eyes of the ANZ group board, which he is a member of. He faced some big calls as Prime Minister. He just made his biggest one yet in his directorial career. It remains to be seen whether it’s enough to save his own position, ANZ’s position, and to stave off a Royal Commission here.”

Similarly, Gordon Campbell today writes that “Hisco’s managed exit is just another conduct and culture diversion. It should be treated as a scapegoating exercise, and not as a genuine gesture of reform” – see: On our Wild West banking culture.

Campbell views this episode as a good example of obvious complacency in the banking sector, as well as complacency from the politicians about the need for a proper inquiry: “Another example of Key being asleep at the wheel? Maybe so. Remember how – when the Australian Royal Commission into banking came up with its damning findings in February about how the banking industry operated – our bankers and politicians claimed that we did things differently here? We were supposed to believe that whatever bad things the parents of the Aussie banks that dominate our banking environment did at home, their branches here behaved quite, quite differently. Yeah right. Somehow, the recent Reserve Bank and Financial Markets Authority inquiry into the conduct and culture of our banks missed the debacles at ANZ entirely.”

One banking insider – former BNZ chairperson Kerry McDonald – has been particularly scathing about the role of Key and his fellow ANZ board members. He asks: “So what was the New Zealand board doing to manage and monitor expenses?”, and he says “If the ANZ board is not capable of having systems and processes in place that identify problems of this nature – chief executive spending or the way risk is managed – then you’ve got to have serious doubts about their ability to run a bank” – see RNZ’s ANZ boss’s departure raises ‘serious doubts’ over NZ board’s ability.

There have already been more limited inquiries and review set up. But these are not assuaging McDonald’s concerns, according to this article: “Mr McDonald said the recent banking sector inquiry was ‘once-over-lightly’. He said the Finance Minister should get directly involved, and it was time the Reserve Bank showed it could regulate the sector effectively, or that there were wholesale changes at the central bank.”

The same report quotes Prime Minister Jacinda Ardern playing down the need for intervention: “Ardern doubted that the central bank was failing to do enough. ‘That’s not something I would necessarily have thought was true.’ She said the banking inquiry was focused on whether consumers were being treated fairly, rather than the personal integrity of those operating in the sector.”

There are now renewed calls for some sort of Royal Commission of inquiry into the banks in New Zealand. The leading voice is former banker and current KiwiSaver provider Sam Stubbs. He has written an opinion piece arguing that, although the Australian banks insist that they operate with greater ethics in New Zealand, “the opposite seems to be unfolding” – see: ANZ’s David Hisco debacle shows New Zealand needs a banking Royal Commission now.

Here’s his case for a thorough inquiry: “This debacle shows that a Royal Commission of inquiry into banking is sorely needed in New Zealand. The FMA and Reserve Bank do not have the powers of enquiry a Royal Commission would have. Management need to be under oath and whistleblowers protected by law. It would cost approximately 1 per cent of bank profits this year, and give everyone confidence. Given this is an industry that is so critical to our individual and collective wellbeing, a properly resourced enquiry is what we deserve. And politicians should establish one quickly”.

Stubbs has also argued that it’s a potential conflict of interest for John Key to be a board member of both the local New Zealand operations of ANZ and also the Australian-based parent company. Similarly, he says “Doug McKay is chairperson of BNZ, and on the board of parent company NAB. In holding dual directorships, both are potentially conflicted. In tough times they could be in the unenviable position of having to choose whether to look after the parent company in Australia, or their NZ subsidiary” – see: ANZ and BNZ directors can’t have a bet each way.

Finally, this week’s ANZ CEO expenses scandal is far from being the first time that bank has been in serious trouble. In fact, the ANZ has had a whole list of dodgy dealings in recent years, which is covered well by Rob Stock in his article: Six times ANZ has been in regulators’ naughty corner.