Sunday Sanity Break, 10 February 2019 – Cleaning the stables
It has been the week of the Royal Commission report. The general response is that it was not as tough as we all suspected but will serve to clean the banking stables. Bank share prices surged despite what some found as scathing comments on the big banks and referrals of some, or perhaps all, to ASIC for investigation or charging in a court of law. The commissioner’s comments were perhaps harshest when noting that he doubted NAB’s Chair and CEO had gotten the message.
Caught on TV Ken Henry, NAB’s excessively self-satisfied Chairman, failed to respond with any sincerity or even common courtesy to his interrogator at the Commission. I was not surprised. My surprise is that NAB’s Chair and CEO remained in office for several days. Ken Henry’s talk with Leigh Sales on the 7.30 Report showed a polite, humble, chastised former Secretary of Treasury virtually saying ‘I was an idiot’.
Most sensible commentary has commended Commissioner Hayne and his staff for an excellent report. My main regret is that the Commission did not insist that banks divest themselves of insurance and fund management subsidiaries to avoid the conflict of interest when bank staff recommended their ‘in house’ product offerings in those sectors. My interest in this subject issue is because In the late 1990s whilst running these subsidiaries at ANZ bank I engaged the Frank Russell company from the USA to provide best of breed fund managed product. They also trained our financial planners to sell the global best practice packages of product created for groups with differing risk profiles. This new and far better product sold like hot cakes but once I left the deal with Frank Russell was cancelled and the greatly inferior home-team product was restored.
My other change was to define a new one word vision statement for the staff of ANZ funds management: ‘Customers’. This proposal was met with uncomprehending silence by my board. After the meeting a member of the board came over to see me. ‘We in the bank understand the importance of customers. We aim to take every last bit of blood from every last customer’. Obviously a mate, but a very cautious one.
The good news is that in the 2 years I was MD of funds Management profits rose from $30 to $80 million. The further good news is that three of the big banks already have their funds management businesses on the market. Only Westpac plans to keep their business, grown from their purchase of BT. If this is the pattern in reality, there will be some divergence from the ‘me too’ attitude to modern banking.
My judgment is that the report is an excellent document, perhaps softened a bit by the need to avoid heavy-handed bank bashing. ASIC and APRA will presumably do some bank bashing of their own, and some bankers have already been referred to regulators for legal action or investigation. Some adverse findings will serve to make bankers understand that we are sick of their rip-off culture and demand improvement.
There has also been comment of how to improve the superannuation system and a push by Labor to limit people to sending money anywhere but the top ten industry funds, clearly an obvious but nutty political play.
Now politicians have the task of deciding what to do. The current government has promised to do its best to implement the Commission’s report almost completely. The opposition has given what sounds to me like luke-warm endorsement. As our two main parties face each other like rabid dogs, it is hard to be confident that a best practice banking, insurance and superannuation system will emerge anytime soon. But I shall be delighted to be proven wrong.
One further point. Few commentators have pointed out that consumers of financial services have often failed to check whether or not they are being ripped off. Dead people cannot protest at the rip-off, but what about executors of their wills? If returns on their funds, or even cash interest rates, are low, how many people have complained, or changed banks? ‘Let the buyer beware used to be a saying, but it seems now we require a royal commission to clean the stables of finance.
RBA wakes up.
The latest RBA monetary report says the outlook is less cheery than previously advised. Economic growth forecasts have been reduced. Wages growth and therefore inflation forecasts have been raised. The domestic risks include further substantial falls in prices of houses and flats and in production of same, continued sluggish consumer spending and serious further loss of consumer confidence. On the international scene, geopolitical ‘headwinds’ are worrying. The US and Chinese economies are expected to slow, the Eurozone is stagnant and Japan is struggling. The US-China trade war is likely to get more serious. Brexit seems likely to end badly. Various less developed nations have their own problems, notable Venezuala.
We are now seeing a slight degree of realism in RBA ranks and there is more to come. With no recession since 1990-91, many people will be spooked and fearful, and downward momentum will make things worse. Look at the settings of the main Macroeconomic policy instruments. Government spending and growth of debt is entering the danger zone, and household debt at twice household income is simply scary. Interest rates are very low and the RBA says the odds are 50/50 the next move will be down. All of these facts provide little room to ease policy to offset recession, so we the people will experience suffering.
It is reported that Labor’s tax plans are designed to raise $200 billion over the next 10 years. Shadow Treasurer Chris Bowen gave the two-fingered salute to poor pensioners who will lose their franking credit refunds, designed to avoid double taxation of business profits. The full set of tax plans is clearly designed to soak the rich, and also the merely well-to-do, and gives the coalition its best chance to produce a surprise win. Their taxation of superannuation balances is a main handicap. A smart bloke who continues to fight this ridiculous battle promised that Liberals would resume making donations in droves if the Treasurer adopted an end to this mad policy of the disappearing Kelly O’Dwyer. Get on to it, Scomo, and then discuss an attack dog campaign with Tony Abbott.
The Royal commission has clearly revealed the rotten culture in the once-mighty AMP and in Australia’s big banks and other financial businesses. A senior lawyer recently told me how these companies demand help, increasingly these days and still treat lawyers with rudeness and contempt. The fish rots from the head.
Sending some staff to jail and firing others will be needed as well as a strong effort from senior managements to improve culture in financial services companies. Arrogance and excess pay is a massive problem, and I include in this list the regulators. All senior people in financial services need to get a large (say 50 %) pay cut with later increases contingent on both profits and perceived attitudes to customers.
More uplifting Kulture ...
Fiona Prior is taken by a schizophrenic performance and falls under the spell of ‘The Tiger’s Wife’. More here.
AFLW is happening, and sadly Caaarlton! was flogged by a newly established North Melbourne team. Better news for the Caaarlton! men, former captain Mark Murphy is seeing out his time at the Blues and says improvement will be rapid. Hiring two gun players from the VFL seems like good sense.
Cricket is baffling, different types of games and seasons that do nothing to help the ‘red ball’ players, who shortly travel to England for the battle of the also rans.