Banking royal commission: Commonwealth Bank chief Matt Comyn takes the stand
Commonwealth Bank chief Matt Comyn, the first bank chief to take the stand at the royal commission, says annual bonuses to the staff risks encouraging them to do the wrong thing for customers. Here’s the latest.
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Commonwealth bank chief Matt Comyn says the lender could have cut home-loan interest rates under a radical plan to axe trailing commissions for mortgage brokers.
And the bank might have saved borrowers thousands of dollars in costs had it proceeded with the move to a flat-fee model for brokers, he said.
But the CBA abandoned the plan, floated by senior management last year, after deciding other banks would not follow and it would have lost too much market share.
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Mr Comyn made the revelations Monday as the final round of public hearings for the financial services royal commission got underway.
He was the first chief executive of one the major banks to appear at the inquiry.
Commissioner Kenneth Hayne asked Mr Comyn if there were any ongoing services supplied by mortgage brokers to justify their long trailing commissions — payments they receive from a bank for years after securing a home loan for a customer.
“I think they would be limited, commissioner,” Mr Comyn said.
Mr Hayne pressed the point, asking if these would be “limited or none”.
“Much closer to none,” Mr Comyn replied. “I will take that as a ‘none’,” Mr Hayne said.
Counsel assisting the commission Rowena Orr, QC, revealed confidential CBA emails outlining the plan to pay a flat fee to brokers rather than trailing commissions.
On average, the amount paid to a broker would have fallen from $6627 to $2310, according to modelling disclosed in the emails.
Flat fees would remove an incentive for brokers to write bigger loans that secure bigger commissions.
The commission heard such a fee structure could deliver an “incremental return” to the CBA of $197 million in cumulative savings over five years.
Mr Comyn said this could have meant lower interest rates for home loan customers.
“We also had contemplated … how we might pass some of that improvement through to customers directly in the context of lower interest rates,” he said.
But in April last year, the bank decided not to move to a flat-fee model as other lenders would simply continue to pay trailing commissions and steal market share.
The bank came to a view “that nobody will follow. And we (would) suffer material degradation in volume”, Mr Comyn said.
He advocated a model similar to one already adopted in the Netherlands where consumers paid a flat fee to secure a home loan whether they went to a mortgage broker or directly to a bank.
Mr Comyn said that unless consumers paid flat fees to banks as well, the market would suffer “distortions”, meaning brokers would lose business.
“I think some degree of regulatory reform to ensure that there were no distortions created would be good,” he said.
The commission also heard that the banking watchdog just last month warned the CBA it was the worst of the big banks for defaulting to demographic measurements when evaluating home-loan applications.
Under the controversial Household Expenditure Measure, banks assess applications based on broad demographic information rather than each borrowers’ specific financial circumstances.
APRA — after assessing data from October last year — said the Household Expenditure Measure was used for 75 per cent of CBA loans.
“I would certainly like to see it in the 50s very soon. I’m very confident it’s going to be at that level very soon,” Mr Comyn said.
Also Monday, Mr Comyn was asked about problems with “add on” insurance sold with credit cards and personal loans.
He said he became concerned about such products in 2014 and raised them with his then boss, former CBA chief Ian Narev, a year later and again in 2016.
“I raised the concerns. He had a differing view,” Mr Comyn said.
“I raised (it) at various points in time and certainly suggested a decision to suspend those sales.
“There was generally indecision around that.
“And I took that indecision to be the decision.”
EARLIER IN THE DAY
Commonwealth Bank chief Matt Comyn said annual bonuses to the staff risked encouraging them to do the wrong thing for customers.
But Mr Comyn said those bonuses are not being abandoned yet, he told the bank royal commission.
Mr Comyn is the first bank chief to take the stand at the bank royal commission in Sydney Monday morning.
Counsel assisting the commission Rowena Orr QC put it to Mr Comyn that one of the risks of variable remuneration is that staff will do the wrong thing by the customer in order to secure their variable remuneration.
“There have been examples of that, yes,” he said, also acknowledging it created “inherent risks”.
But he said the bank had considered abandoning such payments but had decided not to — instead trying to reform the bonus structures.
Mr Comyn said that decision is still under consideration.
“I think incentives is one of the issues that should be regularly considered and discussed … it’s something that we discussed with both the leadership team and the board, from executive remuneration right through the organisation,” he said.
He said the only thing stopping the banning of such bonuses was himself.
“Nothing would need to happen other than for me to make a decision.”
“As it relates to roles where they’re not key management personnel, those decisions would ultimately be mine.”
Mr Comyn said the bank had been reforming the way annual bonuses were paid to get rid of problems.
“I would certainly be committed to, if they are not completely successful, then it may — and it probably will be — necessary to take further steps.”
Asked why the bank did not abolish bonuses overall, Mr Comyn pointed to the case of a UK bank in which one worker told him she worked “30 per cent less” after moving to almost 100 per cent fixed pay.
He said the bank had made “numerous changes” over the last five years to try to fix problems
with pay.
Mr Comyn said the bank had ended all sales targets for branch staff, but parts of their annual bonuses were still linked to other performance hurdles such as “better customer service”.
The commission has previously revealed the Commonwealth Bank’s involvement in the “fee for no service” scandal and how some CBA financial advisers took fees from dead people.
COMPLAINTS FELL ON DEAF EARS
Meanwhile, Mr Comyn was also faced with internal emails by CBA bankers that have been handed to the commission which outlined cultural problems at the bank.
In one case Marianne Perkovic, the executive general manager of Commonwealth Private, said she was disappointed with herself for not speaking up loud enough to “stand up to behaviours that I knew that were not right”.
“We have relied too much on legal, finance and consultant’s views on how to run our business at the expense of customer and community expectations,” Ms Perkovic said in an internal CBA email.
In another case Larissa Shaffir, head of compliance in the retail division of the bank, said when problems were raised they were not listened to because money came first.
“The constraints (are) preventing the voice of risk from being equal to the voice of finance. The team reflected that challenge is not always welcomed or well received,” Mr Shaffir said in an email.
Mr Comyn agreed these were troubling observations from the head of compliance.
Ms Orr put it to Mr Comyn that the bank did not need more compliance people but needed to listen to people like Ms Shaffir when they spoke up.
“I absolutely agree with that,” he said.
And he agreed that “is certainly not what has consistently occurred, no”.
“I was pleased that Ms Shafir is, as you would see in the tone of this email, strident in her views, and I thought that was a good sign,” Mr Comyn said.
A YEAR’S WORTH OF APOLOGIES
Earlier Monday morning, the powerful finance royal commission said it did not want to hear any more apologies from the nation’s bank chiefs but wants answers around why so many scandals have wracked the sector.
The country’s top bankers face the commission over the next fortnight in the culmination of almost a year’s worth of hearings.
Counsel assisting the commission Rowena Orr QC, kicking off the last round of hearings in Sydney Monday morning, said the commission will hear from Commonwealth Bank chief Matt Comyn, ANZ chief Shayne Elliot, Westpac chief Brian Hartzer and National Australia Bank chief Andrew Thorburn.
“These four institutions hold approximately three quarters of the total assets held by authorised deposit-taking institutions in Australia. One way or another, the operations of these institutions affect the lives of most Australians,” Ms Orr said.
But she said the time for long apologies was over.
“Throughout the year, many financial services entities have offered public apologies or expressions of regret for conduct that has been examined by this Commission and other acknowledged misconduct. Those sentiments have often be accompanied by promises that the entity will do better in the future.”
“The purpose of this round of hearings is not to hear further apologies, or expressions of regret.”
“We do not think that will assist you in fulfilling your task,” she said to commissioner Kenneth Hayne.
Ms Orr said the final round of public hearings was about seeking to understand “why did these things happen” and was it to do with risk management, recruitment or pay practices.
“Was it because of practices common to the financial services industry or to specific parts of that industry?”
HOW TO FIX IT
The commission is also going to discuss what can be done to prevent misconduct in the future.
In September, Mr Hayne in his interim report found out-of-control greed among banks and weak corporate cops were to blame for the nation’s financial scandals.
The report set the scene for the next two weeks which will see the bank bosses hauled before the powerful commission.
Monday kicked off the seventh round of public hearings.
The commission will hand down its final report for the year long inquiry in February.
Ms Orr also revealed more than 1000 policy submissions had been received from across the commissions since the interim report that suggested reforms.
She said a large number of submissions suggested that current laws and regulations could be simplified or clarified “to at least some extent”.
Ms Orr said there was substantial agreement that the duty owed by a mortgage broker to their clients would benefit from clarification. “Views were divided about the precise ways in which the duty should be clarified.”
There was also very strong support for ending grandfathered commission payments to financial advisers and from superannuation accounts.
“Of the industry submissions received by the Commission, only the association of financial advisers was wholly opposed to ending grandfathered commissions.”
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