Banks inquiry: ANZ faces Parliamentary hearings

Bank bosses have been questioned by MPs on super blunders, credit card costs and the bank’s “blokey culture”.

ANZ CEO Shayne Elliott at the inquiry at Parliament House in Canberra. Picture: Kym Smith

• ‘Debate’ over political donations
• Gaps in Labor’s strategy
• PM slams royal commission calls
• ‘Blokey’ culture challenged
• Bosses grilled on Oswals
• Super blunder ‘a mistake’
• ‘We have failed customers’
• Today’s schedule

ANZ boss Shayne Elliott and his deputy Graham Hodges have faced a parliamentary inquiry into Australia’s big four banks.

The CEO said that “mistakes” have been made and customers have been failed, as MPs grilled them on super blunders, credit card costs and the bank’s ‘blokey culture’.

Elliott also admitted that there is internal debate within ANZ over whether they should cease making donations to political parties.

See how the day unfolded below. We’ll be back tomorrow as NAB and Westpac face the inquiry.

12.29pm:‘Gaps’ around whistleblowers

Coleman suggests Julia Banks has exposed “gaps in your processes” around whistleblowers, but Elliott disagrees.

He says there are about 100 whistleblower complaints of any seriousness each year, but he hoped the bank’s changing culture would see more people raising concerns more openly.

Elliott says the whistleblower system is important, but the bank’s other efforts include audits, peer reviews and external expert analysis.

Coleman has brought the hearing to a close. That’s it for now.

12.21pm:Nine-day ‘delay’ pressed

Thistlethwaite asks about the nine-day “delay” in passing on the August Reserve Bank rate cut which, according to some modelling, contributed $7m to the bank’s bottom line.

Hodges says the delay is sometimes about working out the bank’s strategy about where it can position itself relative to the other banks, not about squeezing the most out of those few days.

“We look to position ourselves in a favourable way with our customers,” he said.

Thistlethwaite earlier asked about TimberCorp and received a backgrounder from Hodges on how the hardship program emerged.

Does the compassionate approach advocated by ANZ extend to not foreclosing on homes? Hodges agreed, but says that was a matter for the liquidator.

Thistlethwaite takes issue with Elliott’s earlier statement that bank tellers earned $50-60,000 as a starting wage. It’s actually $45,491.

Elliot now says he didn’t realise the question was about a teller’s starting salary, saying some had been in the role for 30 years and were on different paygrades.

12.05pm:Small business losses ‘increasing’

Liberal MP Craig Kelly is questioning the elevated cost of products available to small businesses. Elliott says the bank understands risks associated with small businesses that didn’t exist in the past.

“Losses in small businesses have been increasing, and they are much higher,” he says.

Hodges says banks are increasingly the scale of unsecured loans to small business, understanding many of them don’t have assets.

Elliott says lending to small business is growing at 13-15 per cent each year, but says “a lot of small businesses don’t need debt” and the bank is also helping with small business services.

“It’s not huge but I want it to be bigger. There is a transition happening in the economy ... and we want to be part of that and help those businesses set up,” he says.

“What people want is a really competitive rate, and then they want the right service proposition.”

11.53am:Bandt: what about AmBank?

Bandt wants to know about Malaysia’s scandal-hit AmBank, in which ANZ is a shareholder.

Is Elliott satisfied no one employed at ANZ did anything wrong? “Yes.”

Is Elliott sure that he isn’t being investigated? “Certainly not to my knowledge. No.”

Elliott tells Bandt he’s not personally aware of allegations relating to payments to ANZ accounts in Papua New Guinea. The ANZ boss says he hasn’t reported the issue to shareholders, but he’s “sure our organisation investigated those things”.

11.49am:Bosses pressed on TimberCorp

Bandt asks about failed business TimberCorp and whether investors were required to put up their own homes as collateral.

Hodges says the bank loaned to the corporate entity and the bank imposed no such conditions.

“Our financial planners did not have TimberCorp on the approved product list,” he said, saying the ANZ’s financial planning framework was “conservative”.

Had ANZ instructed liquidator Korda Mentha on how it would like the banks’ debts pursued?

“We have worked with actually a number of members of parliament and others who have had requests from investors ... for fair outcomes and compassionate outcomes for investors,” Hodges says. “We’ve urged the liquidator to set up, as they have, a special hardship program.”

Bandt wants to see all documents related to TimberCorp’s operations, but is told that would be “a mountain of documents”. He says he’ll send a written request.

11.42am:‘Debate’ over political donations

Elliott reveals there is internal debate and discussion at ANZ over whether the bank should cease making donations to Labor and the Coalition, which have amounted to several million dollars in recent years.

Shayne Elliott says the ANZ board is discussing political donations and future policy. That will worry the party fundraisers.

— David Crowe (@CroweDM) October 5, 2016

Denying he viewed the donations as investments, Elliott said: “We justify it (to shareholders) on the basis that we are supporting the democratic process in the country.”

He adds: “We are having discussions at our board about the role of political donations and what our position is on that”.

Elliott rejected Greens MP Adam Bandt’s suggestion that the banks had government-subsidised profits that were being protected by the major parties.

Greens' Adam Bandt asks Shayne Elliott why ANZ gives $1.65m to ALP and Coalition but nothing to other parties.

— David Crowe (@CroweDM) October 5, 2016

Adam Bandt's $1.65m figure was for many years. Last annual return shows ANZ gave $100k to Liberals and $80k to ALP. https://t.co/F8HQHSYSh7

— David Crowe (@CroweDM) October 5, 2016

11.40am:What we’ve learned so far

• ANZ has a 16 per cent share of an open and competitive market in Australia.

• While the bank’s profit is large - at about $7 billion - it is less than one per cent of the $900 billion in assets that it holds.

• While the RBA cash rate is an important ingredient in setting home loan and business rates, it is not the only ingredient.

• ANZ made a mistake of “reasonable magnitude” when 1400 customers were affected by breaches in its wealth management business.

• The bank did not lend directly to people who invested in failed managed investment scheme Timbercorp, nor did it advise them to do so.

What we didn’t learn

• Whether any staff got the sack for individual culpability within the bank’s wealth management business.

ANZ CEO Shayne Elliott, right, and Deputy CEO Graham Hodges face the inquiry. Picture: AAP

11.36am:Why do you think you’re here?

Nationals MP Kevin Hogan wants to know why it’s taking so long - typically more than 30 days - to process requests for information between banks.

“When we receive a request we process it within 24 hours ... When another bank comes to us we process that within 48 hours,” Elliott says.

Hogan asks about services for farmers, but Elliott lacks specific knowledge. Hogan signals he’ll put the questions in writing.

Next, Hogan goes for the meta-question, asking why Elliott thinks he’s here.

“I think as an industry we’ve lost touch with our customers. We’ve become too internally focused and lost sight.”

11.31am:How much is your salary?

Shayne Elliott earns at least $2.1 million.

Keogh ploughs headlong into the issue of executive pay.

Elliott has conceded his $2.1 million base salary is “clearly significantly higher” than that of a bank teller, $50-60,000. He acknowledges he met targets at Chief Financial Officer despite losses in profitability and customer satisfaction.

“On balance it was assessed by the board that the performance was broadly on target,” he said.

“My compensation is much lower than my predecessor, as it is for many new people we’re bringing onto the team.”

Elliott says performance is calculated on a “balanced scorecard” and he wanted the formula reviewed and simplified.

Elliott says Australia should look at adopting the UK’s new standards for bank executives.

11.14am:How profitable are credit cards?

We’re back after a short break and Labor’s Matt Keogh is curious about the profitability of credit cards. “I’m not sure that we disclose that, but I’ll give you a rough idea. It would be, after tax, a couple of hundred million dollars,” Elliott says, acknowledging it is a large amount of money albeit a small share of the banks’ overall earnings.

Elliott says the bank is currently looking at changing the parameters for credit cards to ensure people can avoid financial hardship. “It’s the right thing for us as well ... It’s not in our interest to have customers with products they can’t service,” he says.

Hodge says the bank’s “hardship teams” are very effective at managing people who express concerns about servicing their debt. Over the last year, they’ve started looking at “pre-hardship” characteristics to approach clients whom they suspect might be at risk.

“Some people actually welcome that approach from the bank. Other people are indignant that we’ve approach them,” Hodge says.

10.46am:Credit card costs examined

Elliot has given Liberal MP Scott Buchholz an illustrative breakdown of costs in the credit cards business.

If the credit card section were a stand-alone business, he says, 25 per cent of the cost would be the cost of funds. Another quarter would be features - insurance, reward points etc - while about a third are the administrative systems needed. The balance, slightly less than 20 per cent, is lost through bad debts and fraud.

“It’s not the largest in size, so it’s a relatively small part of the bank if you will, but ... the return on equity is higher on average,” he says.

He expects greater advances in technology will allow better targeting of credit card interest rates based on the risk of the customer.

Elliott says the average rate paid by ANZ customers on credit cards is about 11.5 per cent, given interest-free periods and other concessions offered to customers as lures to sign up.

Hodges says about two-thirds of the people who have high-rate cards don’t pay any interest. “Why they are attracted are the free insurance, Flybuys points, all the perks,” he says.

Elliott says he wants the ANZ should look at the way it advertises credit cards.

Given so few people actually pay the full interest rate, the higher advertised rate is “probably doing us more damage than good in the way it looks”, he says.

“I think there’s an opportunity for us frankly to take a bit of leadership on this and do something better on not just the interest rate but also the fee structure on cards,” he says.

10.40am:ANALYSIS: Gaps in Labor’s strategy

David Crowe: “We’re seeing no real pressure on bosses”.

The gaps in Labor’s strategy are showing in this session with ANZ chief Shayne Elliott, writes David Crowe. More than one hour into the hearing, Labor MP Pat Conroy has returned to a line of questioning begun by his Labor colleague Matt Thistlethwaite, the deputy chair of the parliamentary committee. The issue at hand is one of the most contentious in the furore over the banks – and the fear that staff in bank branches are paid financial incentives to put pressure on customers to sign up to financial advice or insurance.

Elliott told the committee earlier that tellers do not receive commissions for signing up customers, but he admits there are incentives. Those incentives make up much less than 10 per cent of an employee’s total compensation and in most cases it is about 2 to 3 per cent of their remuneration, he says.

This is central to the question of whether there is a conflict of interest at the heart of the banking industry – that a teller, for instance, might have an incentive to encourage a customer to take up a product even when it is not suitable for that client. Elliott plays down these concerns but it is an important avenue of investigation.

A more co-ordinated line of questioning would produce better results for Labor. Conroy asks a few questions on this but them moves on to other issues. There is no real pressure on Elliott or his colleague, deputy chief executive Graham Hodges.

Conroy called this parliamentary inquiry a “farce” yesterday because he did not have enough time to ask questions. The Labor MPs could certainly make better use of their time.

What the bank inquiry missed: Yesterday, Commonwealth Bank chief Ian Narev didn’t really have to raise much of a sweat as politicians focused on the bank’s scandals previously covered, writes Michael Bennet. Read the full story here.

10.37am:‘We’re not pressuring tellers’

Elliott defends paying bank tellers extra to refer their customers to financial planners.

“Referring customers to a specialist to have a conversation about their financial health is a good thing,” he says.

Asked if he’s confident bank managers are not pressuring tellers to make needless referrals, Elliott says employees facing duress, pressure or harassment have avenues to complain about their bosses.

“I am proud of the culture of our bank. Having said that ... we have made mistakes,” he said.

Elliott is reluctant to reveal the return-on-equity from the ANZ’s credit card business, but says it is “well above” the 12 per cent average across the bank.

That said, he argues, the credit card section is “not a growing business” and the margin has “come down a lot” in recent years.

Conroy asks about whether the “oligopolistic” situation where five banks dominate 82 per cent of the market is healthy. Ellott denies there is a lack of competition, saying Australia has an “intensely competitive” market and the ANZ fights every day to boost its market segment.

10.33am:What about breach reports?

Labor’s Pat Conroy is now asking about the ANZ’s breach reports to ASIC about financial planners. He notes a 750 per cent increase in breach reporting in the financial planning branch over the year from 6 reports to 45 - that’s about one-in-40 of the financial planning workforce.

Elliott suggests the bank is raising its standards and catching up to past abuses that had not been uncovered.

How much compensation has been provided in recent years? Elliott doesn’t know and will come back with more information.

How many homes or businesses have been foreclosed on as a result of failed TimberCorp investments? Hodges says he doesn’t know of any, but certainly no ANZ financial advisers recommended the company as an investment.

10.32am:PM slams calls for royal commission

Turnbull: Labor acting like a “pirate’s parrot”. Picture: Chris Higgins

Away from the inquiry, Malcolm Turnbull has accused Labor of acting like a “pirate’s parrot” amid its continued calls for a banking royal commission.

The PM declares at a press conference his government is “taking action” on banking misconduct while the opposition is merely “talking”.

“We do want to see a speedy, low cost way for people to resolve their complaints, their claims with financial institutions,” he says.

“All Labor has is they say ‘have a royal commission’. They’re like the sort of a pirate’s parrot, they just keep on saying the same thing, ‘have a royal commission, have a royal commission’. That is all they want to say. What we are doing is getting on with the job of ensuring that there are changes to the law, changes to banking culture, changes to banking practice, setting up a tribunal of the kind you are speaking about, we’re doing all of those things, giving additional powers to ASIC, taking on the issues of misaligned incentives with insurance.”

Turnbull has given himself a slap on the back, labelling the parliamentary hearing into the banks – which his government initiated - a “very important innovation”. He says the inquiries will ensure a “higher level of accountability” is placed on the bank CEOs. The PM also claims the chiefs will aspire to get a “bouquet” before the parliamentary committee rather than a “brickbat”.

“CEOs will not be prepared to go before the committee and get humiliated and they will have to go before the committee and what they will be saying to their team is ‘we have to sort these issues out, we’ve got to deal with these concerns, we’ve got to treat people better’ … The virtue of the economics committee is it will be there every year for the next 100 years. The royal commission on the other hand is a one-off inquiry, you have it, it’s done, it reports and it’s over.”

10.14am: ‘Blokey’ culture challenged

Liberal MP Julia Banks wants to know about the scope of his apology. Is it just for his time as CEO? Elliott says it comes on behalf of the entire bank at all times, and he is “sincere”.

Julia Banks. Picture: AAP

“When things go wrong our responsibility is to fix things, make sure they don’t happen again and apologise,” he says.

Banks suggests Elliott consider adopting a “proactive compliance framework” rather than a “reactive” one.

Is it fair to say the bank works with ASIC when it suits you? “No. We work with ASIC all the time,” he answers.

Banks suggests there is an “endemic blokey culture” at ANZ, bringing up previous allegations of an environment of drugs and strip club visits. Elliott agrees “culture is key” and he as the leader sets the standard. He says people cleared of wrongdoing have a right to return to work.

BACKGROUND: Elliott highlights need to lead by example

Liberal MP Julia Banks, only woman on committee, asking about "blokey" culture of banks. ANZ's Shayne Elliott rejects it's "blokey".

— David Crowe (@CroweDM) October 4, 2016

Banks seizes on Elliott’s mention of his robust new whistleblower protection policy, asking whether he has tested the framework by authorising a mock test. He hasn’t.

Elliott admits not enough of the most senior roles in his bank are held by women, but says the government had taken strides but he takes the issue “very seriously”.

Banks, who has a strong policy interest in unconscious bias, asks whether Elliott has done any training on unconscious bias. He says he doesn’t know. She says he hasn’t.

“This idea that the whole bank has a blokey culture, frankly I reject that,” he says. “Branch land is overwhelmingly run by very, very competent women.”

Banks says it wasn’t so long ago that, as a junior corporate lawyer, a bank manager refused to take account of her income on a home loan application because she was married and of child-bearing age.

10.12am:‘Incentive scheme’ for staff

Thistlethwaite wants to know how the bank goes about offering its products to customers.

“Absolutely we use transactional data to go and offer customers better outcomes,” he says, and undertakes to provide more information.

Elliott explains the bank uses a ARD Service Staff Incentive Scheme that sets targets for employees and, if they do well, they receive a performance bonus which is a “relatively small part - certainly less than 10 per cent remuneration” for a customer-focused employee.

Thistlethwaite says he needs more time to drill into issues such as TimberCorp. Elliott volunteers to return for further questioning if asked.

9.59am:Bosses grilled on Oswals

The bankers are being asked about Indian businessman Pankaj Oswal, who settled a legal stoush with ANZ last month and has admitted to falsifying documents.

Pankaj and Radhika Oswal. Picture: Hamish Blair

Hodge says there was a “very detailed and intense” external investigation given the amount of money involved, and the bank “quickly moved to let the authorities know” once wrongdoing had been identified.

Asked why the bank entered further commercial dealings with Oswal despite the allegations of forgery, Elliott says the bank was “cautious” but aimed to complete a half-finished fertiliser plant with the Oswals to safeguard the bank’s shareholders’ interest.

Elliott notes a half-finished fertiliser plant is worth less than a vacant block of land.

“We had a lot of money out the door and our primary responsibility was to look after our asset,” he says.

BACKGROUND: How Radhika Oswal crushed ANZ’s will to litigate

Thistlethwaite asks: Surely if Oswal had admitted to forging documents you would stop loaning funds to his enterprise?

Elliott replies: “No, we would continue to make sure the project is completed ... and have the right security protocols.”

Thistlethwaite questions why the ANZ took six months to report the alleged forgery after Oswal gave and then retracted his admission of guilt.

“Technically that’s correct but again he was a colourful character who admitted a lot of things,” he says.

Shouldn’t you be careful about loaning money to colourful characters? “No, we shouldn’t have.”

When Oswal dodge reported to ASIC? Why wait six months? @ElliottShayne 'Colourful character who admitted all sorts'.@ANZ_AU#bankinquiry

— Banking Day (@bankingday) October 4, 2016

9.50am:40 staff discharged

Labor’s Matt Thistlethwaite is now taking the interrogators’ role, asking Elliott to detail some of his banks’ failures.

“We have made mistakes, there’s no doubt about that,” Elliott says, adding that all instances of poor behaviour are reported to ASIC.

Forty employees and line dealers tainted by wrongdoing were discharged or left the bank last year, he says.

“We go through the files and we work with ASIC to agree what is the right remediation outcome. Sometimes that takes a bit of time ... but we absolutely do that.”

Elliott says customers who have been served by dodgy financial planners have typically not advised of the fact, although such bans are advertised publicly by ASIC.

The ANZ boss admits that that is “a gap in our process” and customers will receive notice of that fact henceforth.

9.46am:Tribunal a ‘good idea’

Coleman is now on to bank account portability which is being piloted in the UK. This would allow customers to switch banks easily without losing their BSB and account numbers.

Elliott says his bank would “be happy to co-operate” with any moves to introduce it in Australia. Asked why the bank has always opposed it, he says: “In the past, the technology hasn’t always existed to make that easy.”

Elliott accepts the ANZ may have been opposed to such moves in the past, but he’s not personally opposed.

The discussion moves to consumer redress for unconscionable behaviour by bankers, including a proposed “one-stop shop” for finance sector complaints.

Elliott says the tribunal is a “good idea” provided it is “simple and efficient for customers”.

Liberal MP Craig Kelly has been pushing for a banking tribunal with the power to backdate cases in a bid to help compensate victims, including those from Timbercorp.

“We need a banking tribunal which enables people in the Timbercorp case to actually take that case to a low-cost tribunal where they can subpoena documents and actually get a result,” he told ABC radio on Wednesday.

9.42am:‘Market’ for tracker rate mortgages

Coleman is turning to the issue of “tracker rate mortgages” that are pegged against independent benchmarks such as the RBA cash rate, rather than the whims of the banks. Such loans are available overseas, but they impose a heavier risk burden on banks.

Elliott says there “probably is a market” for such loans, if people were willing to pay a premium for that stability.

“We’re not convinced there is a market to pay more for certainty,” he says. “If people want certainty in Australia they’ve tended to choose they would have a fixed rate.”

Elliott says he would not be opposed to the government mandating that banks offer such loans.

9.39am:Heads won’t roll

Elliott says the bank has no grounds to stand down employees who have been accused in court of wrongdoing by regulators.

“We do not believe those individuals have done anything wrong,” he says, arguing that acting prematurely would cause a “difficult employee relations issue”.

9.36am:What about incorrect fees?

Coleman says the charging of incorrect fees for 400,000 customers for its core banking products suggests “an internal culture which is at best negligent and at worst deliberately structured to charge fees to clients that you are not entitled to charge”.

Elliott says the bank is doing its best to make good on its mistakes, saying he’ll come back to the committee with more information about the consequences for individuals involved.

9.32am:Super blunder ‘a mistake’

Chairman David Coleman, a Liberal MP, says he wants to get into the nitty gritty of how ANZ “dropped the ball” in its wealth management arm.

Hodges takes issue with reports of 1.3 million customers dudded in the scandal, saying it was only 1,400 customers whose superannuation was directed into the wrong account, but Elliott accepts it was “still important”.

“We made a mistake. It was poorly managed,” he admits.

Coleman has put the ANZ on notice that it will be seeking documents relating to internal investigations undertaken in relation to ANZ company OnePath and its impact on consumers.

ANZ chief Shayne Elliott insists only about 1,400 customers hit by super blunder but wider impact was 1.3 million https://t.co/4kEC1bcbiZ

— David Crowe (@CroweDM) October 4, 2016

9.26am:‘Shareholders have not always won’

Elliott is defending the bank by suggesting ANZ shareholders are not making the most lucrative of investments.

“ANZ shareholders have received an average annual return of a little over 9 per cent in the past 10 years and saw losses in four of those years. So shareholders have not always won,” he says.

He notes that shareholders don’t benefit proportionally from bank profits, but take only dividends and any rise in share value.

Now on to Timbercorp, which collapsed into liquidation during the GFC after receiving ANZ loans.

9.23am:Our profits are ‘a lot of money’

Elliott is getting on the front foot in relation to bank profits.

“We reported an annual profit last year of around $7.5 billion and by anybody’s measure that is a lot of money. But we are a very large business with assets of almost $900 billion,” he says. “While our profit is large, it is less than one cent per dollar of the assets that we hold.”

Elliott says the bank has taken “sensible and pre-emptive” measures to bolster its bottom line to hedge against global instability, even though this may not be popular with shareholders.

9.22am:Failures ‘our responsibility’

Elliott kicks off by admitting his bank has failed its customers and says public accountability is a “fair part of the process” as it goes about rectifying the problems.

He says the margin on loans and deposits has halved over the last two decades, and technological disruption will continue to provide better products for customers.

“When we fail them, it is our responsibility to find a fair and balanced resolution,” he says.

“We have not always met the standards that we have set ourselves”.

Read more on Elliott’s opening address here

.@ElliottShayne has apologised for any failures by the ANZ bank in his opening address to a parliamentary inquiry. https://t.co/CSz6clrkSy

— Sky News Australia (@SkyNewsAust) October 4, 2016

9.15am:Today’s schedule

The CEO of ANZ Shayne Elliott and his deputy Graham Hodges will face the House of Representatives economics committee for three hours on Wednesday, from 9.15am AEST, following on from Commonwealth Bank boss Ian Narev who was first up on Tuesday.

CommBank: See how yesterday played out

We’ll bring you live coverage and reaction here.

It is the first of what will become an annual event, announced by the prime minister after the banks failed to fully pass on the Reserve Bank’s August rate cut.

“Based on yesterday’s performance, the case for a royal commission into the banks is effectively dead,” John Durie writes in The Australian today.

National Australia Bank and Westpac will appear before the committee on Thursday.