Friday, April 20, 2018

Today by Paddy Manning

Pub test: the banking royal commission
The government is scrambling and the inquiry has barely begun

The rest of us may be aghast, but in the heart of Sydney’s finance district there’s no shock or horror at this week’s revelations from the banking and financial services royal commission, whether it’s AMP charging advice fees to former clients, or CBA charging advice fees to dead people. The odd radical solution is on offer, however, including a form of people’s bank. There’s not much love for the banks anywhere – even the industry says Australia’s combination of compulsory superannuation, vertical integration and minimal competition has created lazy, untouchable behemoths who had it coming. Will it all blow over? Possibly not this time.

The heads are already rolling, with today’s resignation of AMP chief Craig Meller – sans bonus – tipped to be followed by the likely resignation of chairman Catherine Brenner, and surely that won’t be the end of it. The government is scrambling to respond, and the inquiry has barely begun. After today’s announcement of tougher penalties for white-collar crime, Treasurer Scott Morrison’s banking policy now looks remarkably close to the policy the Greens took to the last federal election, right down to the terms of reference used for the financial services royal commission he opposed.

A young guy in shirtsleeves having lunch at the Customs Hotel – an old stockbroker watering hole from the ’80s, still pretty packed on a Friday lunchtime – has been working on the commodities desk of a small investment bank for the past three years. He has no doubt a royal commission was necessary and has not been surprised at the revelations at all. “It’s a pretty opaque industry. Knowing what banks tend to push in terms of services and fees for what they do, they get away with a lot.” Where he works, “if the regulator comes within a hundred miles of us, we get very frightened, because if our financial services licence is threatened in any way, it’s potentially our entire business. But the big four banks, they’re almost too big to be threatened. There’s almost no higher power they report to. If somebody was to remove their financial services licence, then the people that would get hurt are actually their clients.”

A well-dressed suit at the Royal George, who works for a foreign bank, says “I don’t think any other developed country would wash their dirty linen in public, so it’s surprising to see that.”

A group of financial advisers at the Flynn say the big four banks are victims of their own bloated structure, trying to do all things for all people, and they need to be broken up. The vertically integrated model is not working. They were not fans of the royal commission initially – there’s been too many of them in recent times, says one guy, though he now says it’s justified and there will have to be legislation to enforce the separation of banks and their wealth and advice arms. “That’s the only way to actually implement it.” It’s happening anyway, with CBA spinning off Colonial, for example. “They’ll all just go ‘this is too f**king hard’ and get out of it,” says one bloke.

At the Grand Hotel, the most surprising view comes from a slightly older city lawyer who has clients in finance and property. “They’ve brought out a lot of shit that people are surprised about. Clearly there’s too much power in the big four banks. They all know what each other does.” He says the practices exposed this week have been “going on for ages”, but he has a radical solution. Take home loans off the banks altogether, and use the vast pool of superannuation savings as a form of “people’s bank” to invest in mortgages instead, not run by markets, not run by CEOs earning $10 million each. “Make the banks do their job,” he says, “which is lending to business, to industry, to infrastructure. They should be trading and commercial banks. Why should they have the housing market sewn up? It’s the safest of the lot.” A bit like the Freddie Mac and Fannie Mae loan funds in the US? No, their lending standards were rubbish, he says. “They were writing bullshit money, not backed by anything.” A bit like the Greens’ proposal to turn the RBA into a people’s bank? “No, the RBA has got a different role … it’s the regulator.” The idea makes some sense: it’s often said that infrastructure and commercial property investments provide the kind of steady returns that retirees like to live off. But so could mortgages, with much less risk and ticket-clipping on the way.

since this morning

The heads of financial advice at ANZ and Westpac appeared at the Banking royal commission today with the AFR live-blogging here [$]. The Australian reports that Westpac did not pass on [$] “serious concerns” about one of its financial planners to the advice group that hired him after he left the bank.

Former deputy prime minister and Nationals leader Barnaby Joyce and Vikki Campion, his former media adviser, have welcomed the birth of their son, Sebastian, at Armidale Hospital on Monday.

At the COAG energy council meeting in Melbourne today, states and territories have agreed [$] (The Australian) or clashed with (The Age) the government over the design of the National Energy Guarantee, ahead of the federal government’s deadline for a decision in August.

in case you missed it

The ABC revealed that three Australian warships were challenged by the Chinese military as they travelled through the disputed South China Sea earlier this month.

In his first column for The New Daily, veteran finance commentator Michael Pascoe writes, “The bigger story behind these early days of the royal commission is the trashing of the entire Big End of Town.”

The new Australian Press Council chairman, Neville Stevens, told [$] the Melbourne Press Club yesterday that the appointment of GetUp! director Carla McGrath to the council last year “threw into question the independence” of the newspaper watchdog.

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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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