BNZ and Westpac jointly won the 2005 Roger Award for the Worst Transnational Corporation Operating in Aotearoa/New Zealand, the first joint winners and the first banks to win the Roger (the extremely detailed Judges’ Report, by Joe Hendren, is in Watchdog 111, April 2006, which can be read online at http://www.converge.org.nz/watchdog/11/03.htm). The judges spelled it out that if all four Australian-owned banks had been nominated (the other two being ANZ and ASB), they would have declared all four to be the collective winner and to be viewed as one conglomerate. Certainly there are plenty of good reasons why all four of them should be regarded as corporate criminals.

Credit Card Hidden Fees Ripoff: ANZ Stung For A Record $11.3 Million;

Let’s start with the little matter of the lot of them ripping off their credit card customers to the tune of tens of millions of dollars. In November 2004, the Commerce Commission announced that it would be taking criminal action under the Fair Trading Act against ANZ, National, BNZ, Westpac, ASB, TSB, American Express, Diners Club and Warehouse Financial Services for non-disclosure of international currency conversion fees. The Commission’s chairwoman, Paula Rebstock, said that, "the amount of undisclosed fees ran into ‘at least the tens of millions of dollars’" (Press, 11/11/04; "Disputed fees in millions"). This follows an 18 months long investigation by the Commission, triggered by complaints to the Banking Ombudsman. There is an April 2004 American precedent where the California Superior Court ordered Visa and Mastercard to repay up to $US800 million in undisclosed conversion fees to American cardholders (that is under appeal, and nobody has been refunded yet). The individual sums might not be large ($10-$15 is typical per individual credit card statement, for transactions while the cardholder was overseas) but added up they come to a tidy sum. "’In New Zealand the sums might not be huge in the big picture but they are definitely not small if they are being taken out of your pocket’, says Bank Customers Action Collective spokesman, Gray Eatwell. The organisation has been lobbying the Commerce Commission and banks to work toward transparent bank fees since 1998. ‘Our belief is that this is criminal and we are asking for some honesty’" (Press, 23/11/04; "Credit card fees under fire", Kristina Greene) And it is noteworthy that Westpac’s international currency conversion fees were the highest. As of 2004, it had four types of credit card and the currency conversion rates ranged from 2.95% to 3.05% (by contrast, TSB offered the lowest rate, at 1.75%).

This unprecedented Commerce Commission action was next heard of in March 2006 when ANZ National admitted the charges in the Auckland District Court. It was fined a record $1.3 million for breaching the Fair Trading Act and, in a deal worked out with the Commission, agreed to pay an additional $10 million into a trust account, to be disbursed among up to 300,000 affected customers (one of whom is my wife, Becky, who spent several months with her family in the Philippines during the 2001-04 period covered by the charges, using her ANZ Visa credit card. She received a refund of the princely sum of $29.76). During the relevant period, ANZ and National were two separate banks (ANZ has since taken over National), so current and former cardholders of both banks have to be contacted by ANZ National. The compromise deal between the bank and the Commission means that customers will receive a maximum of 80-90 cents for every $100 spent on a foreign transaction (Becky worked out that her refund equated to 60 cents per $100 spent). The bank was also ordered to apologise to its customers (it explained that it had incorrectly considered the currency conversion fee to be part of the exchange rate and therefore thought that it did not need to be disclosed). The Commission also clarified that the resolution of this case would not stop customers taking their own action under the Fair Trading Act.

This sort of occurrence is very unusual in the sad and sorry history of the relationship between New Zealand “enforcement” agencies and the big businesses that they are supposed to be overseeing. Usually nothing happens or, at most, a slap on the wrist. $11 million is small change to a banking giant such as ANZ National but it is a painful enough bee sting to make it take notice and it had to undergo the humiliation of a public apology, plus the hassle of contacting hundreds of thousands of present and former customers in order to reimburse them, one by one, piddly sums of money. It was such an unusual occurrence that the Press devoted an editorial to it (3/4/06; “Under scrutiny”).

“Few New Zealanders will have any sympathy for ANZ National Bank…The add-on costs of the predominantly foreign-owned banks in this country have long been a source of frustration and resentment for their clients. For a banking group of the financial scale of ANZ National, the penalties inflicted upon it will no doubt be relatively easily absorbed, despite the fact that the fine was easily the highest ever imposed under the Fair Trading Act. But the real message of this prosecution is that the Commerce Commission, which brought the legal action, is bringing a welcome determination to rigorously enforce fair trading law and to protect consumers… This (non-disclosure of currency conversion fees) will reinforce the suspicion that banks rely on customers either not fully checking their bank statements or else being overawed by the size of the banks and not vociferously complaining. It must be hoped that the scrutiny of the Commission will lead to total transparency by all banks over the fees they charge…

“…A small economy such as New Zealand’s is especially vulnerable to predatory behaviour by monopolies or near monopolies and to price gouging by major companies. Too often in the past, the financial and legal resources of the big companies have enabled them to ride roughshod over the legitimate complaints raised by their clients. This is precisely why it is essential to have a proactive watchdog such as the Commission, ready to ensure that actions taken by businesses in what they regard as the legitimate pursuit of profit are not at the unfair expense of consumers or their competitors…”. And so say all of us.

… And $5.5 Million For BNZ

ANZ National was the first bank to have had the charges against it concluded in the courts. David Russell, the Chief Executive of the Consumers’ Institute, said: “It would seem to make a lot of sense if the other banks agreed to make the refund and save themselves and their customers the long and tedious hassle of a defended case” (Press, 31/3/06; “Credit Card Costs: Bank Forced To Say Sorry. $10m hidden fees refund”). The BNZ obviously decided to heed his advice and, in July 2006, pleaded guilty to 21 representative charges covering the 2002-04 period. It was fined $550,000, plus $80,000 in costs and ordered to refund $5 million to potentially more than 100,000 existing and former customers. But Westpac reaffirmed that it felt that it had adequately disclosed the fees and gave every indication that it will fight the charges against it, which go to trial in September.

Selling Debt Is Where The Money Is

Credit cards are where the money is for the banks. Just before Christmas 2005, possibly in anticipation of its looming guilty plea and payout, ANZ increased the interest rate on its credit cards to 20.7%, the highest it had been in seven years (the interest rates of the other Australian-owned banks, at that time, were all over 19%; Kiwibank was the lowest, at 12.9%). Once again the Consumers’ Institute’s David Russell condemned ANZ, calling it a “scandal…banks have been quick to offer customers increased lending limits in recent months, and the ANZ is now leading the pack in imposing interest of more than 20% on the money it has encouraged people to spend” (Press, 23/12/05, “ANZ ups interest rate on Visa”, Roeland van der Bergh). As of September 2005, New Zealanders’ total credit card debt was $4.1 billion, up 8.4% on the previous year. Of that figure, nearly two thirds is not paid off each month and thus incurs those usurious interest rates (having mentioned that my wife is an ANZ Visa credit card holder, as I am, I should point out that we are among the one third who pay off the bill each month and incur no interest charges). In their home country, the Australian banks also rapaciously gouge their own people. “Income from credit card fees rose 18% (in 2005) to $A900 million as banks sought to recoup revenue lost after the Reserve Bank forced them to cut hidden fees charged to merchants. Banks’ fee income from credit cards has more than tripled since 2000” (Sydney Morning Herald, 25/5/06, “Aussie banks collect record income from fees”, quoting the Reserve Bank of Australia’s annual report on bank fees).

The 2005 Roger Award Judges’ Report detailed both BNZ and Westpac pressurising their staff to sell debt products, particularly credit cards, to customers, as opposed to selling them products which the customers actually asked for or needed. Objecting to this was the reason why Finsec, the bank workers’ union, called a strike by Westpac workers on the last business day before Christmas 2005. That same month the BNZ came under fire, from its own staff, the media and the Banking Ombudsman, for “offering credit cards with pre-approved limits of up to $5,000 to thousands of non-bank customers on the Fly Buys database. The offers were apparently sent without financial checks to people including bankrupts, unemployed and people with intellectual handicaps… In one case, a beneficiary with a gambling addiction and bipolar disorder was initially given a $3,000 credit limit, which was upgraded to a gold card with a $9,500 limit” (Stuff Website, 22/12/05; “Ombudsman strikes out at banking practices”). BNZ was shamed into withdrawing the ill-considered offer.

But BNZ is like a dog with a bone. Right on Christmas it sent a memo to all staff, urging them to use “life events” for what is known as social prospecting: “It is important that we keep up and maintain our sales and service focus right through the holiday season to ensure a successful 2006 for the bank. It does not matter where you are over the holiday period … at work or on the beach … there will be numerous opportunities to provide financial solutions to family and friends by referring them to Bank of New Zealand” (Press, 28/12/05, “Sales tips ‘backfire’ on BNZ”, Colleen Simpson). No surprises in guessing how this was received by BNZ staff. Peter Appleby, who had worked for the bank for four years, said: “In the past I have been quite happy when friends and family have asked me to talk about the bank’s products because some of them are quite good. But this just throws my motives into doubt completely. Secondly, this is Christmas, it is a time to spend with friends and family and not to be selling bank products, particularly debt to family” (ibid). By the following day, BNZ was refusing to answer any media questions on the subject, but was unrepentant about the actual practice. Finsec accused BNZ of violating the collective agreement for breaches involving hours of work, work-life balance and monitoring workloads.

Mega-Profits

Profit is the name of the game and the Australian-owned banks are creaming it. The big four are ANZ, Westpac, National Australia Bank, which owns BNZ, and the Commonwealth Bank, which owns ASB. In the 2004/05 year those big four made a combined $NZ15.37 billion in profits. ANZ made $NZ402.7 million profit in New Zealand in the six months ended March 2006, a 14% increase on the previous half year. BNZ made a $270 million tax-paid profit in NZ for the same half year period, a 7.6% increase; and ASB made $217 million, a 19% increase.

And from where do these mega-profits come? “Australian banks snared a record $NZ11.1 billion in fees last year, much of it from households rather than businesses. Ordinary customers paid 40% of bank fees last year – a total of $A3.66 billion – compared with 30% nine years ago, the Reserve Bank of Australia said in its annual report on bank fees… Total bank fee income rose 4%, or $A334 million, compared to 2004… The largest component of fee income from households was fees on deposit accounts, which accounted for 40% of the total. Fees from this source grew 5% in 2005…” (Sydney Morning Herald, 25/5/06, “Aussie banks collect record income from fees”). This is about the Australian operations of these banks but the same principle applies to New Zealand.

Some come from the arcane and secretive world of futures trading. But not through any fairy stories involving “the invisible hand of the market”. Oh no, a good old fashioned jackup is much more reliable. In March 2006, the Sydney branch of investment bank Morgan Stanley warned its clients that dominant players, specifically the big four banks, were taking advantage of settlement volatility to manipulate the New Zealand futures market to make windfall profits. Morgan Stanley alleged that the banks were participating in a closed shop to set prices for bank bill futures contracts. “Unlike those of Australia and most established markets, NZ futures settlement prices are set by a six-member panel appointed by the New Zealand Financial Markets Association. The panel consists of the big four Australasian banks plus Citigroup and Deutsche Bank” (Press, 17/3/06, “’Closed shop’ on NZ futures”).

Another means of ratcheting up profits is by “restructuring” i.e. sacking staff. For example, National Australia Bank (NAB) is getting rid of 4,700 staff worldwide over a three year period. And to where do these mega-profits go? Well, some of them of them end up in the pockets of the banks’ big bosses. NAB’s Chief Executive and its Australian operation’s Chief Executive each received $NZ6.6 million total remuneration for the 2004/05 financial year (some of Australia’s highest paid chief executive officers are being paid 63 times the average annual earnings of their fellow Australians).

A Shotgun Wedding To Force Westpac To Commit To NZ

It’s not all gloom and doom. To quote from the section headed “Hooray! A Regulator That Actually Does Some Regulating” in the 2005 Roger Award Judges’ Report, by Joe Hendren ( Watchdog 111, April 2006, which can be read online at http://www.converge.org.nz/watchdog/11/03.htm): “In the last couple of years the Reserve Bank has moved to a tougher regulatory stance towards the foreign banks, placing greater restrictions on core bank work being ‘outsourced’ and insisting Westpac change from being a branch of its Australian parent to become a wholly-owned subsidiary. Westpac, the only Australian bank not to be incorporated in New Zealand, spent most of 2004 arguing with the Reserve Bank over this, dismissing the possibility of a collapse as ‘a one in 900 year’ likelihood. But regulatory bodies do and ought to have a responsibility to prepare as much as possible for all eventualities – if the health authorities dismissed the possibility of a bird flu outbreak and did nothing they would be justly criticised. Westpac put up a counter-proposal to its regulator to run its New Zealand operation as a ‘buttressed branch’. Thankfully the Reserve Bank held its nerve and forced Westpac to take moves to incorporate in New Zealand, a process that could take two years. Dr Alan Bollard told a Sydney business audience he aimed to give the New Zealand banking system ‘more resilience in times of financial stress….Banks on occasion do get into trouble, and probably more than is commonly thought’ (Press, 13/9/04, ‘Push on for tighter controls on banks’) pointing to the recent $A360m foreign exchange trading scandal at National Australia Bank, the owners of the BNZ.

“The incorporation of Westpac is expected to provide New Zealand depositors with greater protection in the event of an Australian bank failure, as current Australian law gives priority to Australian customers having first call on the funds and places restrictions on the claims of overseas customers. While Westpac claims that a piece of New Zealand legislation, the Westpac Banking Corporation Act of 1982, offers protection for customers, it is not clear whether New Zealand or Australian law would take precedence in the event of a bank finding itself in financial trouble. As an incorporated company in New Zealand Westpac will have its own board of directors which must act in the best interests of the local operation. The Reserve Bank also has the right to veto the appointment of directors and the chief executive of the local bank…”. To put that into pyschobabble, Westpac is avoiding commitment to New Zealand, despite having enjoyed the pleasures of conjugal rights for a very long time. The Government decided that a good old fashioned shotgun wedding was in order.

In March 2006 the Westpac New Zealand Bank Bill was introduced into Parliament with the express intention of forcing Westpac to incorporate in New Zealand as a wholly-owned subsidiary, with its own New Zealand board of directors, rather than being run as a straight-out branch from Australia, as at present (which is unique among the four Australian-owned banks). Green MP, Sue Bradford, spoke in support of the Bill at its First Reading and proceeded to read into Hansard great chunks of the 2005 Roger Award Judges’ Report about Westpac’s multitude of sins.

She concluded: “I hope that the Select Committee takes a good look at this Bill when it reaches them. The fact that an Act of Parliament is needed to facilitate the incorporation of Westpac in New Zealand means that Westpac should have even more obligations to be a good corporate citizen and a good employer. Its corporate behaviour will have to change on a number of fronts. I urge the Select Committee not to just go through the motions of hearing submissions and reporting back the Bill. They also have an obligation to determine whether this legislation will change the behaviour of the bank. And if it will not, they should consider what amendments will be necessary to make sure that a Bank, relying on an Act of Parliament to incorporate in New Zealand, acts as a good corporate citizen and good employer” (speech in Parliament, 29/3/06). Maori Party MP, Hone Harawira, also used the introduction of the Bill to voice criticisms of Westpac. The Bill is currently before the Finance and Expenditure Committee and is due back in the House at the end of September. Westpac has said that it is hoping for the changeover to take place in November.

Government Should Dump Westpac As Its Banker

It is Sue Bradford who is fronting the Buy New Zealand Made Campaign (the mantle she inherited from the Greens’ former Co-Leader, the late Rod Donald), which is part of the post-2005 election deal between Labour and the Greens. CAFCA has suggested to Sue and others that the campaign would have a lot more teeth if it was extended from products to services, and an obvious one is banking. Here the Government can lead by example – the official bank of the New Zealand State is none other than Westpac. What a bloody joke! Why doesn’t the Government lead by example and replace a shonky Australian bank with a New Zealand-owned, publicly-owned one, namely Kiwibank (created by this Government and growing by leaps and bounds)? Start hitting the Australian-owned banks where it hurts, in the pocket, and show them that crime doesn’t pay.