Bank bosses’ fury: others will pay

Bank bosses say the cost of the government’s $6.2bn levy would be borne by shareholders, customers and ­employees.

The bosses of the nation’s biggest banks said yesterday the cost of the government’s $6.2 billion federal levy would be borne by their shareholders, customers and ­employees, as Malcolm Turnbull and Scott Morrison ramped up their attack and vowed to withhold chief executives’ bonuses.

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Slamming the budget grab for revenue, bank chiefs hit back at the Treasurer’s claim that they could “absorb” the extra cost, ahead of a crucial meeting today that could decide whether they mount a ­campaign against the government to limit or destroy the levy.

The furious dispute raises concerns­ over the impact on 2.6 million shareholders and about 190,000 employees at the five banks being targeted, with invest­ors wiping billions of dollars off their market value.

Former ANZ chief executive Mike Smith last night blasted the Coalition’s surprise budget measure.

“The tax, because that’s what it is, is reminiscent of less well-managed countries in ­Africa and South America,” he told The Australian. “Where does it all stop? On and on it goes.”

The Prime Minister escalated the fight yesterday by vowing to impose laws that force bank chief executives to wait longer to collect 60 per cent of their pay bonuses, so the cash could be clawed back if they were found responsible for malfeasance.

Mr Turnbull told parliament the banks had “let down their customers­”, while the Treasurer said bankers’ poor public standing could worsen if they sought to raise interest rates.

“They (the public) already don’t like you very much,’’ Mr Morrison said.

Bill Shorten kept up his demand for a royal commission into the banks but signalled his support for the levy, raising expectations of a swift passage through the Senate in time for its scheduled July 1 start.

Westpac chairman Lindsay Maxsted was scathing about the tax. “It came out of nowhere and there is no justification for it, other than that the budget has been mismanaged, there’s a hole to fill and we have the capacity to pay,” Mr Maxsted told The Australian.

Westpac chief Brian Hartzer said there was “no magic pudding”. “The cost of any new tax is ultim­ately borne by shareholders, ­borrowers, depositors and employ­ees,’’ he said.

Commonwealth Bank chief Ian Narev wrote to every employee to warn them “there is no such thing as a cost being absorbed” and that the hit would extend to 800,000 families­ who own CBA shares.

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The head of the Financial System Inquiry David Murray said the levy made no economic sense.

If it were passed on to bank customers, he said, it would be equivalent to a 15 to 25-basis-point hike in interest rates at the same time that the government had announced a “mildly expansionary” budget.

“And if it’s not passed on, you’re stripping capital out of the banks when they have to be unquestionably strong,” Mr Murray said. “It underscores the purely political nature of it.”

The levy is accompanied by budget measures to set up a “one-stop shop” to act on consumer complaints, tougher regulation by the Australian Competition & Consumer Commission, and rules to force executives to repay ­bonuses if they are responsible for malfeasance.

Former National Australia Bank chief executive and ex-BHP Billiton chairman Don Argus said the levy reminded him of the debacle­ surrounding the imple­mentation of the resources super profits tax, introduced by the then Labor government in 2010.

He said it would affect the banks’ cost of capital, with clear implications for major projects such as the industry’s frequent technology updates.

“The other big question is: who’s going to be next (to have a levy imposed)?” Mr Argus said.

Investors wiped $14bn off the market value of the major banks on Tuesday and shares fell again yesterday morning before recovering, with ANZ shares ending higher.

The five banks that will pay the levy are the ANZ Group, Commonwealth Bank, Macquarie Group, National Australia Bank and Westpac.

The banks will send chief financial officers and chief legal counsel to a meeting with Treasury officials this morning to nail down the scope of the levy, as the industry seeks more details about technical issues related to the design of the scheme.

After hearing from Treasury, the banks will have only 24 hours to make submissions, which are due to close tomorrow.

While the meeting is meant to be about “technicalities” rather than the merits of the reform, the banks fear the government does not understand that the 0.06 per cent fee on liabilities will allow big global banks such as HSBC or Citigroup to undercut them with business customers.

Industry executives privately warned the revenue could soar because the policy was devised­ in haste and without consultatio­n.

There was also a claim yesterday from several well-placed sources that the government’s lack of consultation had extended to the banking industry regulator, the Australian Prudential Regulation Authority, but an APRA spokesman declined to comment.

Angry at the surprise hit on their profits, the banks argued yesterday that the levy could not be justified by an “implicit guarantee” of their loans because they had paid $5bn in fees during the global financial crisis to secure commonwealth support.

The industry is reeling after ­receiving formal notice of the levy only an hour before Mr Morrison rose to deliver the budget at 7.30pm on Tuesday. “In effect, it’s a ‘f..k you’ message from the government,” one executive said.

Australian Bankers Associa­tion chief Anna Bligh joined the war of words after Mr Morrison’s warning that the banks were ­already unpopular.

“This is a very dangerous preced­ent in government policy setting — the government has made a political decision that banks are an easy target,” Ms Bligh said.

“There are only three ways the banks can find the money to pay this tax — it will either come from shareholders, from savers or from borrowers or a combination of all three.”

The Westpac chairman said the initiative amounted to an attack on the finances of the five banks’ shareholders.

“We’re strong and we’ll get through this,” Mr Maxsted said.

“But I’ve been meeting shareholders (of toll road company Transurban, of which he is also chairman) today, and that’s certainl­y how they see it — an unwarranted attack on them.

“Everything is reactionary now (in politics); nothing’s considered and thought-through.”

Mr Turnbull challenged the Opposition Leader to abandon talk of a royal commission in favour of voting for the levy, an industr­y ombudsman and tougher sanctions on bank executives.

“The banks aren’t scared of a royal commission, sunshine,” he told Mr Shorten.

“They’ve got plenty of lawyers and big law firms.

“What they’re concerned about is being held to account and that’s what we have done.

“What the Leader of the Opposition is doing, in his gutlessness and in his pathetic populism, is promising years and years of lawyers. Many, many lawyers, lots of fees.

“The fact is this: we know what’s gone wrong with the banks, we know they’ve let down their customers, we’re putting in place the mechanisms to deal with it.”

Mr Shorten said that the governm­ent had to explain how the levy was not going to lead to an increase in charges or an increase in interest rates.