Monday, June 4, 2018

Today by Paddy Manning

Banking bad to worse
Expectations of reform are getting very high


An extraordinary avalanche of crime and punishment has fallen on the big four banks in the past few days, on top of whatever misery the Hayne financial services royal commission promises to inflict. Media exposés, Senate inquiries and fines for corporate misconduct are bad, but jail time is the threat that really worries company directors and senior executives. The competition regulator’s decision to launch criminal proceedings against ANZ and others on Friday, over conduct that might previously have been considered routine, will have warning bells ringing at ear-piercing levels in boardrooms across the industry.

Regulators are suddenly crawling all over the banks. The public is reeling from revelation after revelation – loan application fraud, fees-for-no-advice, cartel conduct, rate-rigging, money laundering – creating almost impossibly high expectations that the culture of these businesses will change, once and for all. Given we are only a few months into the Hayne royal commission, which is likely to seek an extension of time to dig even deeper, the hunger for reform and retribution could turn into an existential crisis for the big four.

Just to recap, on Friday the ACCC confirmed that the Commonwealth DPP would lay criminal cartel charges against ANZ and its group treasurer, Rick Moscati, as well as two investment banks – Deutsche Bank and Citigroup – which were working together to dispose of an underwriting shortfall on a $2.5 billion placement in 2015. Investment banks are given joint mandates to “sell” shares to fund managers on the “buy” side (generally, the people running your super) every day of the week – floats, capital raisings, you name it. Does it mean they have formed a cartel? Suddenly that question will be tested in court, and the stakes are high. Broking is a dark art and maximising the sale price is the name of the game; the buyers are professional investors who are paid incredibly high salaries to know every trick in the book. The Australian’s Alan Kohler writes today [$] that: “It is breathtaking that the ACCC chose to launch criminal proceedings against ANZ, Citigroup and Deutsche Bank rather than publish a paper on the risk that collaborating to dispose of an underwriting shortfall could be an illegal cartel. In a way the outrage of those banks is understandable. They have always got together to organise this stuff, and everyone knows it.” Kohler notes that J.P. Morgan has been given immunity by the ACCC, which “raises the immensely tantalising suspicion that it has been spilling the beans”, though he added that “we don’t know”. The AFR this morning revealed [$] that a recorded video conference call involving Moscati and the three investment banks following the capital raising is at the heart of the ACCC’s case.

Then today, the Commonwealth Bank has agreed to settle for a staggering $700 million – the largest civil fine in Australian corporate history – the money laundering case brought by regulator AUSTRAC. The Australian’s John Durie writes [$] that the breaches “epitomised the past hubris at CBA, which was the key flaw outlined in last month’s damning APRA review of the bank’s systems and failures”. The AFR’s James Thomson warns new chief Matt Comyn that CBA “cannot simply pay this penalty and move on. The size and scope of the problems that the AUSTRAC case unearthed mean that this settlement must be a building block in the bigger Comyn clean-up.”

The criminal proceedings and record fine come against drip-feed revelations of new outrages, from the investigation by ABC RN’s Background Briefing into the mis-selling of high-risk investments by Macquarie Bank, to The Guardian’s exclusive today that Westpac’s wealth management arm lost the files of hundreds of customers it was supposedly providing with financial advice.

With memories of the financial crisis fading, the banks now are clearly fair game: too-big-to-fail, not too-big-to-assail. Assuming that Hayne can reckon with all the banks’ misdeeds, the next question will be: what would a better-regulated, more ethical financial services industry look like? The solutions have to be thought through properly, not in a kneejerk fashion – separating product from advice, for example, does not solve the conflict of interest problem at the heart of financial planning remuneration models. That debate has barely begun.

since this morning

The Commonwealth public service commissioner, John Lloyd, has announced his resignation just days after a Senate estimates grilling that questioned his independence.

Fortescue Metals chairman Andrew Forrest’s Australian Industrial Energy plans to build a floating LNG import terminal in Port Kembla that will bring more gas to NSW and Victoria as soon as 2020.

in case you missed it

An RMIT ABC Fact Check has found that former One Nation senator Fraser Anning’s claim that more than half of Australia’s working-age Muslims are not in the workforce is “wrong”.

The Australian reports [$] that Labor is facing a grassroots revolt over refugee policy. The report is based on more than a dozen motions submitted by Labor Party branches to the annual NSW conference in June.

Only 631,000 viewers in metropolitan markets tuned in for Channel 7’s $150,000 interview with Barnaby Joyce and Vikki Campion. Meanwhile, Fairfax Media reports that Joyce boasted of lobbying the prime minister to support his friend Gina Rinehart’s National Agriculture Day months before he received a $40,000 personal cheque from the mining billionaire.

Liberal senator Eric Abetz has asked [$] the Australian Securities and Investments Commission to investigate GetUp! after finding documents it lodged with the regulator to disclose its corporate structure left blank the page listing full members who “run the show”.

by Erik Jensen
Hotel Golf
Helen Garner on life, anger and judgement

by Mungo MacCallum
The Barnaby Joyce sideshow
Joyce is merely the most prominent of many embarrassments for the government

Paddy Manning

Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including a recently updated unauthorised biography of Malcolm Turnbull, Born To Rule?


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Voluntary assisted dying laws won’t please the religious right

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The government’s economic reform agenda is threadbare

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