RBA on Australian banks: don’t trust ’em
The RBA has some choice words for Australian banks, and they would do well to sit up and pay attention.
http://www.crikey.com.au/2015/03/26/rba-on-australian-banks-dont-trust-em/
The Reserve Bank has rounded on Australian banks and condemned them for their poor behaviour in recent times. The forthright criticisms, contained in yesterday’s first Financial Stability Report of the year, are unprecedented. They tell us the poor monitoring conducted by some of the RBA’s employees of banks such as Macquarie, Commonwealth Bank, ANZ and NAB has upset the most powerful organisation in the financial markets.
These banks have featured in scandals involving insider trading (NAB), dodgy investment advice (Macquarie, CommBank, and NAB) and overcharging for imposts such as late fees (a number of class actions, with ANZ head of queue). The attitude and performance of the banks has not escaped the notice of federal Parliament, or the Australian Securities and Investments Commission (finally).
Now, the Reserve Bank has weighed in with perhaps the most pointed comments on bank culture the central bank has levied in recent years. In fact, the central bank lumps the behaviour of some of our banks in with the rorts and other fiddles by some of the world’s biggest banks (Goldman Sachs, Barclays, Deutsche Bank, Soc Gen, Citibank, Bank America, and RBS). These have included fiddling the fixing of foreign exchange dealings, interest-rate settings, gold-settlement prices, selling dodgy financial products (in Britain, with NAB front and centre) and the great subprime rorts in the United States. Fines in the hundreds of billions of dollars have been levied against these banks (not the Australian banks).
It’s a roll call of bad behaviour, weak management, non-existent controls and the wrong culture. Said the RBA in its generally upbeat view of the healthy Australian financial system:
“*Another area of focus for Australian banks is their conduct and culture. These issues are receiving greater attention among market commentators and the global regulatory community, following a number of conduct-related problems that have resulted in substantial legal expenses for certain global banks.
“Australian banks are required to maintain a sound operational risk framework that ensures the proper functioning and behaviour of systems, processes and people; complex and diversified banks should have a more robust framework in place.
“Banks are also expected to understand their ‘risk culture’, which can be thought of as the way the management of risk is viewed in practice across the institution.
“Conduct-related events in one area of a banking group may be a signal of broader governance, cultural and risk management deficiencies, and could give rise to entity-wide reputational risks.”
In other words, the RBA is warning our banks that the rorts and other issues mean they increasingly can’t be trusted on bigger issues, such as good lending practices, capital adequacy and management generally. These comments were absent from previous stability reviews. The most senior financial regulator in the country has been stirred into warning the banks (obliquely, it must be said) that it is tired of the poor management and examples of weak culture. The question is, what’s next if things don’t improve?
Well, go back to the foreign-exchange-options trading scandal that enveloped NAB in 2004, cost close to $400 million, and resulted in management and board changes and criminal prosecutions. Management of NAB was put in the hands of APRA and the Reserve Bank for over a year.
And there was another warning to banks yesterday about the need for “behavioural adjustment” needed to tighten up loose mortgage lending: “Risks in housing and commercial property markets are rising in association with fast price growth in some cities, heightened investor activity and strong price competition among lenders,” the RBA said. After the recent investigation into lending practices, some banks “are likely to attract the attention of the regulators”. The RBA must be really concerned.
NAB feels heat in Europe
By Duncan Hughes
July 10, 2004
http://www.theage.com.au/articles/2004/07/09/1089000356608.html
National Australia Bank could face renewed pressure to sell its European operations following the publication of what is expected to be a highly critical report on its Irish bank.
Findings of a six-year investigation into National Irish Bank's alleged overcharging of fees, underpaying of interest, tax evasion and non-payment of deposit interest retention tax, are expected to be delivered within the next two weeks. The inquiry, ordered by the Irish High Court, has already cost the bank about $69 million in taxes, penalties, refunds and compensation to customers, according to banking newsletter The Sheet. Additional inquiries are being conducted by Irish Central Bank and tax authorities as the Irish police and director of public prosecutions consider criminal prosecutions.
NAB has made contingency plans for how it might quickly excise the Irish operation. It declined to comment on the outcome of the inquiry. Meanwhile, investment bank Credit Suisse First Boston said the case for NAB packaging its European operations for an $11 billion sale had been strengthened by the appointment of Michael Chaney to the board. It describes him as a "dispassionate manager, effectively eliminating any vestiges of NAB's previous approach to the UK as being a sacred cow".
A sale could rally the share price from current levels of $30 to about $35, CSFB's analysts believe. They say another factor likely to strengthen the case for a sale is the "magnitude of the investment required" to revive NAB's operations in Britain without any guarantee that it would significantly boost group profits.