Executives help themselves to $300m as big banks cry poor on levy 

The Australian 12:00am June 16, 2017

Michael Roddan

The big four banks and Macquarie Group paid a combined $300 million to their small senior executive teams last financial year, meaning remuneration packages equal nearly a third of the $1 billion estimated impact of the government’s new bank levy.

The remuneration paid by Macquarie Group to its 12-member executive team — more than $120m last year — is more than twice its expected $50m tax bill stemming from controversial new levy.

An analysis of remuneration paid to senior bankers and key managers at Commonwealth Bank, Westpac, National Australia Bank, ANZ and Macquarie Group, show the country’s largest financial institutions paid their executive teams a total of $288.6m, according to the most recent company financial statements. That remuneration went to a total of 64 bankers across the five companies.

The analysis comes as a Senate committee, chaired by Liberal senator Jane Hume, conducts a one-day hearing as part of an inquiry into the bank levy today.

Representatives from each of the four major banks and Macquarie will attend the hearing, as will the Australian Bankers’ Association, senior officials from the Treasury and executives from lower-tier and foreign banks.

According to estimates from the banks and company analysts, the major banks are expected to see a levy bill in the order of $1bn a year after tax thanks to Treasurer Scott Morrison’s proposed levy.

The levy, which applies a 0.06 per cent tax on banks with liabilities in excess of $100bn, is expected to raise $6.2bn over four years. While most estimates show the tax take will fall short of Treasury expectations, the government has stood by its forecasts.

Macquarie, which is expected to face an after-tax bill of about $50m, paid its key management personnel a total of $126m during the year to the end of March. Macquarie chief executive Nicholas Moore, the highest-paid boss of an ASX-listed company, received $18.7m. The bank’s head of asset management, Shemara Wikramanayake, netted $17.3m for the year.

Macquarie, which booked a $2.22bn profit last year, did not deny reports it had been considering options for relocating overseas following the announcement of the bank tax in the May budget.

The group said the levy would have a disproportionate effect on its business because of its large international operations and would see the tax rate on Macquarie Bank — the retail arm of the group and its primary funding vehicle — rise from 34 per cent to 41 per cent.

In a notice for its shareholder meeting, Macquarie said its statutory remuneration for its executive team rose 9 per cent over the year.

This came alongside a 5 per cent reduction in staff employed by the bank.

Commonwealth Bank, which faces the smallest tax burden of the big four banks — $220m — despite being the largest company in Australia, paid its 12 senior executives a total of $52.4m for the 2016 financial year. CBA chief executive Ian Narev alone received $12.3m.

The major banks, and the Australian Bankers’ Association, have warned the cost of the major bank levy will be either passed on to customers through higher interest rates, to shareholders by cutting dividends, or to staff by cutting jobs or freezing wages.

But an analysis by Citi shows customers are used to shouldering the burden of the cost of new regulations. According to a review by Citi analyst Craig Williams, since mid-2015 the major banks have repriced mortgage rates on seven separate occasions to pass on the costs associated with higher capital reserve requirements, along with moves to dampen demand for investor and interest-only loans.

Across the sector, the banks have lifted rates for owner-occupiers by 40 basis points since mid-2015.

For owner-occupiers with interest only loans, rates have been hiked by about 70 basis points. Investor loans have been lifted about 85 basis points and investors with interest-only loans have been saddled with rate hikes of about 100 basis points.

“Retail banking had clearly become a cure-all for protecting sector profitability,” Mr Williams said.

Westpac, which is expected to face a bill of about $260m after tax for the bank levy, paid its senior executive team a total of $35.3m. NAB has estimated its post-tax levy bill at around $250m. It paid its senior bankers a total $35.1m in remuneration.

ANZ, which is likely to pay a levy bill of about $240m after tax, shelled out $41.8m to senior executives.

High banker pay, which has fallen little since the financial crisis despite the sizeable economic damage inflicted, has troubled a number of economists.

“Many of the examples of high personal remuneration, especially in the form of bonuses, in the financial sector reflect not high productivity but what economists call rent-seeking behaviour,” said Mervyn King, former Bank of England governor and renowned British economist.

“(It) diverts talent from professions where the social returns are high, such as teaching, to those, such as finance, where the private return exceeds, often substantially, the social return,” he added in his recent book on the financial system, The End of Alchemy.

A recent IMF study estimated the world’s 11 largest banks enjoyed implicit subsidies from governments of $US62bn a year, some of which might be captured by bankers rather than shareholders.

Kevin Davis, chief economist of the government’s 2014 financial services inquiry, suggested banker remuneration might not fully reflect inherent value added to the economy.

“Part of the reason for (finance sector) growth is that there is potentially lots of money to be made by bright people at the expense of others,” he said.