Banking royal commission: ‘we were wrong,’ say the Big Four chiefs

The Australian 12:00am April 21, 2018

Anthony Klan, Ben Butler

Wrongdoing uncovered by the fin­ancial services royal commission has forced the heads of the big four banks to concede their longstanding opposition to the inquiry was wrong and prompted Scott Morrison to warn boards they were responsible for “abhorrent” conduct uncovered by the probe this week.

“Clearly I was wrong,” ANZ chief executive Shayne Elliott told The Weekend Australian.

NAB chief executive Andrew Thorburn said the inquiry had heard “confronting” and “un­acceptable” evidence.

“It is now clear to me that the royal commission is necessary, and justified,” he said.

After opposing the idea for years, the banks called for the commission in November, believing it would act as a political ­circuit-breaker rather than uncovering serious misconduct.

Responding to The Weekend Australian’s inquiries, CBA chief executive Matt Comyn and his Westpac counterpart, Brian Hartzer, agreed the commission was necessary.

“While I did not originally support a royal commission, the genuine community concerns that have been expressed … show why we ultimately supported the government’s call for a thorough and detailed royal commission,” Mr Hartzer said.

The commission yesterday closed a week of dramatic revelations by claiming its first executive scalp, AMP chief executive Craig Meller.

Mr Meller had been planning to leave Australia’s “fifth pillar” later this year but was forced out yesterday after evidence at the commission revealed the company had deliberately charged customers for services they did not receive, misled the corporate regulator about its misconduct 20 times and then removed Mr Meller’s name from a supposedly independent report into the debacle.

AMP directors including chairwoman Catherine Brenner, who led the board’s response to the scandal, are also under public and investor pressure to follow suit. One institutional investor said the board had to be rebuilt.

“Each individual director will need to prove they were not complicit,” the investor said. “They will need to prove they spoke out against it or reasonably prove they had no knowledge of it.”

As the commission continued to hear evidence that paints a ­portrait of an industry awash with big bonuses but lacking ­consequences for bad behaviour, the Treasurer and Financial Services Minister Kelly O’Dwyer yesterday unveiled steep criminal and new civil penalties for corporate misconduct — some of which Ms O’Dwyer said had not been overhauled in 20 years.

The Australian Securities & ­Investments Commission is also to be given extra powers, including the ability to tap phones.

“It is no wonder that there are some corporations out there who might simply see penalties as the cost of doing business,” Ms O’Dwyer said. “Well, no more.”

Mr Morrison said he was not surprised by Mr Meller’s departure. “At the end of the day, the boards of these organisations are the custodians really of the governance, and I’m sure that that will have plenty of attention as the commission carries on its important work,” he said.

Former Queensland premier Anna Bligh, now chief executive of the Australian Banking Association, which spearheaded the ­aggressive attack against the proposed inquiry, said the conduct uncovered by the royal commission was “unacceptable” and “sobering for the entire industry”.

She said the “industry genuinely believed” that the culture and conduct issues facing banks were “well known”, had been “well canvassed in numerous inquiries” and were being “dealt with” by industry and government reforms.

“Following the matters raised over the last few days ... it is clear this is not the case,” Ms Bligh said.

ANZ’s Mr Elliott said before the royal commission began he believed “many of the issues were known” and had been dealt with “by reforms introduced by both ­industry and government”.

“While I only had detailed knowledge of ANZ’s situation, with revelations this week it’s clear I was wrong,” Mr Elliott said.

NAB’s Mr Thorburn said the community had heard “confronting evidence that is unacceptable” and he was not proud of what he had heard during the hearings.

“It is now clear to me that the royal commission is necessary and justified,” he said.

Ms Brenner said AMP “fully supports the royal commission” and had always done so.

When asked whether AMP had made this view known to the ABA, of which it is a member and to which it pays membership fees, Ms Brenner declined to comment.

Evidence before the commission has revealed a world where bank employees can earn vast ­bonuses but face few consequences when they do the wrong thing.

CBA planners charged dead clients fees for up to a decade and were threatened with nothing worse than a warning, the ­commission has heard. It has also heard evidence that financial planners can pocket up to 44 per cent of the revenue they pull in for their employer, giving them an incentive to push clients into life insurance, where big commissions can be earned.

Three Westpac bankers named at the commission — fin­ancial planners Krish Mahadevan and Andrew Smith and lending officer Karl “money man” Sleiman — still work in the industry.

Yesterday, the commission heard of an episode in which ANZ paid up to $150,000 to bring an ­allegedly dodgy planner from a failing group that was in trouble with the corporate regulator over to a bank subsidiary, as part of a plan to lock in ­lucrative commissions before they were banned in mid-2013.

The Future of Financial Advice reforms, brought in by the then-Labor government and bitterly opposed by the banking industry, ended new “conflicted remuneration” such as commissions. However, they allowed existing commissions to continue to flow and allowed new commissions to be paid on life insurance products.

They also allowed so-called stamping fees, paid by investment groups to advisers who tipped ­clients into their products.

Westpac documents tendered to the commission show that the bank’s remuneration policy still allows planners to reap up to 44 per cent of the revenue they bring in, including fees and commissions. In the case of Mr Mahadevan, he stood to earn up to $16,000 after giving a nurse advice to sell her house, set up a self-­managed super fund and borrow up to $2 million to buy a bed and breakfast business. This was in part because lavish life insurance recommended by Mr Mahadevan stood to reap the bank $27,000 in commissions.

The plan fell apart because the nurse, Jacqueline McDowall, and her husband planned to live in the bed and breakfast and borrowing money through an SMSF against your home is not allowed.

She said this was revealed to her by Mr Sleiman at a meeting where he told her she could only actually borrow about $200,000.

Ms McDowall had already sold her Melbourne home and she and her husband, a truck driver, had to move to the Northern Territory in search of work. She said as a result of the fin­ancial catastrophe, she would have to work until she was 80 and in “a wheelchair or Zimmer frame”.

Westpac says that from October 1, advisers will be rewarded based on a so-called balanced scorecard that reduces the weighting given to how much money they bring in to 20 per cent.