As The Man Said: If Nothing To Hide,
Then Nothing To Fear

- Murray Horton

Roger Award Regulars

Watchdog hasn't run an article dedicated to banks, specifically the Big Four Australian-owned ones*, for a while. But they hold such a disproportionately dominant position in the New Zealand economy (and, hence, society at large) that critical analysis of them is scattered right throughout Watchdog and other CAFCA publications. For example, throughout its 20-year history, banks always featured prominently in the Roger Award's pantheon of transnational corporate villains. *ANZ and Westpac operate here under their own names; BNZ is owned by National Australia Bank (NAB); and ASB by the Commonwealth Bank of Australia (CBA) .

ANZ won the Roger Award twice (2009 and 2014); BNZ and Westpac jointly won it in 2005 (so, only ASB never won it). And when they weren't winning it, banks were right up there among the contenders. The last ever Roger Award was for 2016 - Westpac was a finalist. One judge wrote: "Its decision to close 19 branches, many of them rural, and some of them the only bank in town, after faux consultation, illustrates the contempt for the communities it purportedly serves and its absolute commitment to profit above any other considerations. Its dominance in the NZ banking landscape, due to its earlier takeovers, should carry with it some responsibilities to those communities. Sadly, that is not the case".

Those who nominated banks for the Roger Award had no shortage of material from which to choose. Take, for example, the nomination of Westpac for the 2015 Roger Award (where it was, once again, a finalist): "This year (2015) the cartel of Australian-owned banks, ASB, ANZ, BNZ, & Westpac racked up a staggering profit of $4.59 billion dollars. Westpac's share of this was $916 million for the year to September 30. To achieve this, they continue to screw their workers. The latest round of restructuring, in July 2015, resulted in the loss of almost 100 jobs. Westpac's staff numbers for 2014 were down 3% from the previous year, and 7% from 2012".

"Westpac New Zealand's Chief Executive David McLean, who was appointed in February 2015, took home about $1.8m. Not bad for nine months work. Westpac has retained the bulk of the eight-year Government banking contract, following a tendering process which dragged on for years. Westpac has held this contract since 1989. Such is the volume of the contract that one banking source claimed it enabled Westpac to effectively determine the timing of payment settlements between New Zealand banks".

"But by far the most heinous action thus far by Westpac, and the main reason for this nomination, was the handing over to the Police of Nicky Hager's private account information. Court records show Westpac handed over 'almost ten months of transactions from Mr Hager's three accounts' at the request of detectives investigating the hacking of Whale Oil blogger Cameron Slater's email and social media accounts".

"Other companies that were asked for Hager's private details told Police to come back with a court order, which would have legally obliged them to surrender the information" (this was all to do with the "Dirty Politics" saga. See Jeremy Agar's review in Watchdog 137, December 2014 . In March 2019 Nicky received a pay out and costs from Westpac).

Big Time Tax Dodgers

And the banks are central figures in other major issues that CAFCA has reported on in detail. For example, take transnational corporate tax dodging, a subject that I have written about at length in several issues of Watchdog. Here's an extract from my "Artful Transnational Tax Dodgers: Squeeze Them Until the Pips Squeak", in Watchdog 133, August 2013:

"Most spectacularly, in 2009, it (Inland Revenue Department [IRD]) won an out of court settlement of $2.2 billion from the four big Australian banks (by settling without having to go to trial, the banks paid 20% less than what IRD was claiming and avoided the punitive financial penalties that would have been imposed had they lost at trial)".

"In the finest NZ tradition of political and corporate 'bad news' being announced at times when the media and public are otherwise distracted, this settlement was announced a couple of days before Christmas. CAFCA put out a press release entitled: 'IRD Delivers Best Possible Xmas Present To Long Suffering Kiwi Taxpayers'".

"There really is a Santa Claus. And he has been revealed to be the most unlikely of people, namely the Commissioner of Inland Revenue. Just in time for Christmas IRD has persuaded the Big Four Australian-owned banks - ANZ, ASB, BNZ, and Westpac - to recognise the futility of attempting to dodge payment of the astonishing $2.2 billion of taxes that, between them, they avoided via deliberately complicated structured financial transactions. So, that's how they rode out the recession, by not paying nuisance costs such as taxes. Not an option for the rest of us mugs who have to pay our taxes, whether we like it or not".

"The Big Four only faced up to the inevitable after two of them had been to court and lost, with the judge in one case describing what they did as 'a rort'… This is theft from the NZ taxpayer on a truly monumental scale, particularly at a time when the (then) Government is cutting back public spending and dropping unsubtle hints about more beneficiary bashing. This huge shortfall in tax could be used for health and education" (24/12/09). Not surprisingly, the 2009 Roger Award for the Worst Transnational Corporation Operating in Aotearoa/New Zealand was won by one of those banks, namely ANZ". This remains the biggest penalty payment imposed for tax dodging in NZ's history.

One of the biggest clippings' file boxes that I keep in my office is the one marked "Banks". I just flicked through the 2018 clippings as part of my preparation for this article, and they reveal a continuation (indeed, an acceleration) of all the various negative things that we have reported about banks for decades:

  • profiteering (between them, the Big Four made combined after-tax profits of $5 billion plus, in 2018);
  • closure of branches and even ATM machines, particularly in smaller regional towns, leaving some places without any physical banking services;
  • staff cuts;
  • and pressuring their workers to talk customers into signing up for services they don't want and/or can't afford.

And, in the interests of fairness, it needs to be said that Kiwibank (with whom both CAFCA and I personally bank) has adopted some of the bad practices of its much bigger Australian rivals - from branch closures, even in major cities like Christchurch, to introducing a sweeping range of fees for previously free services.

Australian Commission Of Inquiry

Of course, the Australian-owned banks do not operate in isolation in New Zealand. First and foremost, they operate in their home country, which is where things got decidedly torrid for them in 2018, with a Royal Commission of Inquiry into misconduct in the banking, superannuation and financial services industry. From the outset that inquiry uncovered serious offending, such as dead clients being charged for advice and live ones being charged fees for no services.

Banks were already in trouble with Australian regulators - in June 2018 the Commonwealth Bank of Australia (CBA) was hit with a $A700 million fine by financial intelligence agency AUSTRAC, plus $A2.5 million in legal fees. This fine, the biggest in Australian corporate history, was for failing to carry out appropriate anti-money laundering controls. CBA was reported to be relieved, with some market watchers having expected a $A1 billion fine.

When the Royal Commissioner, Kenneth Hayne QC, released his report in February 2019, it was scathing. He slammed the banks and the people who run them for the industry's widespread greed-driven misconduct. He specifically rejected the "few bad apples" standard justification in such situations and laid the blame squarely on the banks and other financial institutions, their boards and senior executives.

Despite that, he made 24 referrals, including all the major banks - except Westpac - to those very same regulators. And he left up to them the question of whether anyone will face criminal charges. He was particularly scathing about some named bank CEOs, such as that of NAB, who had treated the charging of fees for no services as being simple carelessness combined with systems deficiencies. The aptly named NAB had nabbed quite a goodly pile of customers' money courtesy of this very profitable "carelessness".

So, Why No NZ Inquiry?

The obvious question is - why isn't there an NZ commission of inquiry into how those exact same Australian banks behave in this country? A Press editorial put the case most succinctly ("It's Time For A Banking Inquiry", 4/5/18): "There is no indication that New Zealand's banking sector has seen some of the egregious and fraudulent practices that Australia's Royal Commission has made public. One of the most sensational revelations has involved the collection of bank fees from dead clients".

"But it is also clear that there is widespread disquiet when it comes to our largely foreign-owned banking sector. It can seem that everyone has a story to tell about a less than satisfactory interaction with one of these enormously profitable companies. It might be as simple as wondering why credit card transaction fees are so high, or it might relate to the unease of having a staff member trying to push an unrelated product. That can feel like fast-food upsizing: would you like an insurance policy with that loan?".

"The gullible or vulnerable can find it hard to resist. Banks need to remember that there are significant power imbalances in their relationships with customers and not everyone has the confidence to complain to the banking ombudsman. As RNZ reported, the Banking Ombudsman Scheme is entirely funded by the banks themselves, which might cause some to wonder about its usefulness as a watchdog".

"However, Banking Ombudsman Nicola Sladden told RNZ that her office finds about 100 examples a year of banks behaving improperly. This number, which is the end result of about 3,000 contacts from the public, might suggest a need for greater and more independent scrutiny than Sladden can provide. Retailers, economists and the bank workers' union are among those calling for an inquiry. In the case of retailers, it concerns the credit card transaction fees paid to banks, which are double the rate of fees in Australia. It has been reported that more than $700 million a year is paid in such fees. An inquiry would bring full transparency to that practice".

"The union that represents banking workers is keen for an inquiry because it is aware of the pressure that bank staff can be under to sell services that the client may not have asked for. While the New Zealand banking sector is less competitive and aggressive than in Australia, there is no question that similar conflicts of interest arise on this side of the Tasman".

"The local banks will probably try to stay ahead of an inquiry by responding eagerly to the Reserve Bank and the Financial Markets Authority's recent demand that they prove they are squeaky clean. But it may be that only a Government inquiry or public inquiry with the power to summon witnesses will give our public the confidence it deserves".

In September 2018 Parliament's Finance and Expenditure Select Committee did hear submissions on the behaviour of NZ's banking sector. Consumer NZ Chief Executive Sue Chetwin told the Committee that the Australian banks had denied that there were problems before the commission of inquiry exposed nefarious conduct, including bribery and fraud. "The lack of scrutiny of our banking industry, I think, calls into question whether consumers can have faith in those (types of) assurances. It's the same banks, the same products and possibly the same sales techniques" (Press, 20/9/18, "Banks' Size Crucial To Conduct", Hamish Rutherford).


In November 2018: "A review of the biggest 11 banks in the country... by the Financial Markets Authority and Reserve Bank, cleared New Zealand banks of the widespread abuses of customers identified in the Australian Royal Commission on banking. But the FMA/RBNZ found banks were error-prone, had under-invested in systems despite their huge profits, and were dragging their feet on phasing out sales incentives which worked against customers' interests".

"...Banks have been given just over a year to remove sales incentives pressuring staff into selling products like personal loans, credit cards and insurance. Those which do not, will have to convince regulators they have systems in place to effectively prevent mis-selling of financial products and services to customers".

"'We expect banks to implement changes to their incentives' programmes no later than the first performance year after 30 September 2019. In March 2019, we will ask all banks how they will meet our expectations regarding incentives, and we will report on their responses. Any bank that does not, at that date, commit to removing sales incentives for salespeople and their managers will be required to explain how they will strengthen their control systems to sufficiently address the risks of poor conduct that arise with such incentives'".

"The FMA/RBNZ review found that cock-ups resulting in customers being overcharged were concerningly commonplace in banking, blaming 'underinvestment in systems' and 'weaknesses in systems and processes'. It refers to fixing these errors as 'remediations'. Our review identified more than 50 remediation activities that were in progress or recently completed', the FMA said. 'For remediation issues where banks had estimated the financial impact, an estimated 431,000 customers had been impacted, at a total estimated remediation cost of $23.9 million'".

"But it said: 'There are a number of remediation activities underway where the impact on customers is yet to be determined. The four largest remediation activities underway (in terms of customer numbers) affect a combined total of 336,000 customers, with a total estimated remediation cost of $12.7m. Each of these issues is estimated to affect between 60,000 and 110,000 customers'".

"The estimated average impact per customer was relatively small, between $5 and $100, but it said: 'The majority of issues appear to have been caused by system or process weaknesses, or processing errors'. Fixing the repeated mistakes would require 'prioritising investment, and should be an area of ongoing focus for banks beyond the conclusion of this review', the report said (Press, 6/11/18, "Banks Given A Year To Ditch Incentives", Rob Stock).

The NZ Bankers' Association had a novel explanation for why - according to them - things are hunky dory on this side of the Tasman. Antony Buick-Constable, the acting CEO, said: "We think, importantly, it comes down to the smaller size of our country and the smaller size of our banks. We're more connected - we're talking to our customers on the sidelines of footy matches on a Saturday. We think this is an important difference from the Australian landscape. We are very connected to customers" ( Press, 20/9/18, "Banks' Size Crucial To Conduct", Hamish Rutherford).

Pull The Other One

Others had a more realistic assessment: "Curiously, our watchdogs at the RBNZ (Reserve Bank) did not bark very vigorously at all at the Aussie banks. Late last year (2018) the RBNZ concluded that our banks did not display the same behaviours that Hayne has now condemned. It found instead that such as they were, the banks' conduct problems derived from their internal culture and were not widespread".

"Very curious. To believe that... one would need to live in a rather strange world. One in which massive profits are being racked up by the local outlets of Australian parent banks that have acted very badly on their own turf, but that - for some reason - have not behaved in the same ways here in New Zealand. Gosh. What on Earth caused this sudden inrush of virtue to Aussie banks, once they'd set up shop here?".

"Even curiouser... The RBNZ findings (that any banking problems here are caused by an internal culture that's gone a bit awry) look remarkably like the failed defence that was mounted by the NAB top brass at the Hayne Inquiry. Here in New Zealand, the RBNZ focussed almost entirely on whether top bank managers have been too 'complacent' in their attitudes towards the public, or whether individual staff may have been overly zealous in peddling the banks' products. As a consequence, banks could sometimes seem to be acting in their best own interests, and not on behalf of their customers! Fancy that".

"In front of the Royal Commission, the National Bank of Australia's CEO Andrew Thorburn tried to peddle exactly the same line, citing excessive zeal and poor management of internal processes as the root cause of any mistakes made. Hayne wasn't buying it: The Commissioner said Mr Thorburn tried to portray the charging of fees for no service as a 'product of poor systems and carelessness' and 'just professional negligence'".

"Mr Hayne hit back: 'I cannot and do not accept this. I thought it telling that Mr Thorburn treated all issues of fees for no service as nothing more than carelessness combined with system deficiencies when the total amount to be repaid by NAB and NULIS on this account is likely to be more than $A100 million', he said".

"Meaning: given (a) the size of the compensation and remediation bill in Australia and (b) the scale of the profits being extracted from the NZ customer base, there are structural issues involved, not merely a few unfortunate over-reachings made by individual staff. That being so, where is the official analysis - say, by the Commerce Commission - of the NZ banking industry's profit structures, to see how and where those mega-profits are being generated, and what can be done to regulate them down from the stratosphere?"

"Last year (2018), PM Jacinda Ardern was publicly expressing her concern that oil companies seemed to be fleecing ordinary New Zealanders at the petrol pump. Well, multi-billion profits are being extracted by banks from ordinary New Zealanders and these profit levels are rising at rates of 5% and 10% on top of previously record annual profits. Yet all we're hearing from the Government is that this is a 'conduct' and a 'culture' issue. In effect, the banks have been put on notice that they need to be more polite to their customers while ripping them off. According to Finance Minister Grant Robertson, the banks need to 'up their game' and keep the customer's long-term interests in mind. LOL".

"Late last year (2018), the Coalition government said it would be waiting until Australia has concluded its Royal Commission into the banking industry, before considering what regulatory response if any, New Zealand might make. That day has arrived. Yet in time honoured fashion, our watchdogs will reportedly be chewing over the Hayne report carefully (until media interest has subsided) before deciding whether to bark".

"Not for the first time, we've delegated to the Australians all the donkey work involved in analysing the structure of the banking industry, and have then chosen to assert that things are done differently here. All logic would suggest otherwise. Presumably, our Commerce Commission could embark on its own market studies of this industry, now that it can do so off its own bat. But would it be given the resources to do so? Probably not".

"In all likelihood, we'll never know what level of damage is being done to our economy by the mega-profits being siphoned offshore by the Aussie banks. Or the validity of (a) the margins they charge, and (b) the fees they extract. But by jingo, Finance Minister Grant Robertson will be on their case if they don't improve how their counter staff treat their customers!" ( Scoop, 5/2/19, "Gordon Campbell On Why The Aussie Banks Are Bastards").

A Bit Of Government Tweaking

This is not to say that the banks are getting away scot free in NZ. The Reserve Bank plans to make them strengthen their balance sheets by pumping in fresh capital equivalent to 70% of their next five years' profits. And, in January 2019, the Government announced that it will fast-track customer protection measures in the financial sector, covering both banks and insurance companies. The Ministers of Finance, Grant Robertson, and Commerce and Consumer Affairs, Kris Faafoi, said ("Govt To Act To Protect Bank, Insurance Customers", 29/1/19):

"We want to see:

  • Clearer duties on banks and insurers to consider a customer's interests and outcomes, and to treat customers fairly.
  • An appropriately resourced regulator to monitor the conduct of banks and insurance companies, with strong penalties for breaching duties.
  • Changes applied to both banking and insurance, since the issues identified in both are similar. There are also overlaps between the sectors, with banks often selling insurance products.
  • A strong response to internal sales incentives and soft commissions".

Robertson told the media that he opposed the idea of a banking inquiry, because it would slow down the changes that the Government plans to make to the financial sector anyway. Funnily enough, similar arguments across the Tasman did not stop the Australian government setting up the inquiry in that country. Add to that the fact that the banks are a much bigger part of the NZ economy than they are of the Australian one. Not to mention that, per capita, they make more money here.

"An analysis of data released to Stuff by the Reserve Bank shows that, compared to gross domestic product (GDP), the Big Four Australian banks are 26% more profitable in New Zealand than they are in Australia. ANZ makes more per capita from New Zealanders, in local currency, than any big bank in Australia makes from Australian customers" (Stuff, 20/5/18, "Banks Make More Money Out Of Kiwis Than Australia", Susan Edmunds and Hamish Rutherford).

Labour, In Opposition, Held Banking Inquiry

There is even a precedent for an inquiry into banks in NZ, namely the Parliamentary Banking Inquiry, conducted a decade ago by the then Opposition parties (Labour, Greens and Progressives. If you've forgotten about, or never heard of, the Progressives, I refer you to my obituary of Jim Anderton in Watchdog 147, April 2018. By the time of this Inquiry - 2009 - the Progressive MPs consisted of Jim and Jim alone. This took place in the single three-year term that New Zealand First was out of Parliament). In other words, Labour in Opposition was happy to take part in an Inquiry into banks that it doesn't want to replicate now that it is in Government.

I'd forgotten about this Inquiry (which was boycotted by the Government parties and the Aussie banks) and I suspect a lot of other people have too. It is well worthwhile refreshing your memory about it. You will find the Council of Trade Unions' edited submission to it, which was presented by Bill Rosenberg, in Watchdog 122, December 2009 ("Big Banks Behaving Badly: More Regulation Needed").

Despite having been held ten years ago, the topics covered in the CTU's submission are remarkably current. Here are the subsection headings: Lending Margins; Increased Profit Taking By Banks; Reliance On Foreign Sources Of Funding; International Capital Movement Needs To Be Regulated; Bank Charges; Competition; and Responsible Behaviour.

That Inquiry was held in the wake of the 2008 Global Financial Crisis, which gave the world the phrase "too big to fail" and which raised the very real prospect of a run on the banks in Australia and New Zealand. It was only after the Australian government guaranteed bank deposits there that Helen Clark's Labour government reluctantly did likewise here (and that Government deposit guarantee no longer exists).

The CTU's submission to the Parliamentary Banking Inquiry concluded by calling for a wider inquiry into banking. The submission's conclusion is still very relevant today: "In light of the international and domestic financial and economic crisis - compounded by the evidence on bank charges, competition in the sector and the behaviour of banks - further consideration of suitable supervision and regulation of New Zealand's financial system is merited. Particular note should also be afforded the expert view that excessive competition will encourage the high-risk behaviour that led to the financial crash in the USA".

"In light of the 'too big to fail' status of the Big Four banks, the consequent extraordinary level of State support given to them, and their recent behaviour, the banks should be subject to requirements accompanied by monitoring, supervision and governance structures that ensure their good behaviour as corporate citizens and optimise their value to the economy rather than leaving them to their individual profit maximising self-interest".

Go On, The Sky Won't Fall

So, come on, Labour, you've done it once, when you were in Opposition. Do it again now that you're in Government, with all the resources of the State at your disposal. Don't worry about the inevitable cries that it will adversely affect "business confidence" or possibly even "threaten the New Zealand way of life". The Tory government in Aussie went ahead and had one without the sky falling (except, hopefully, onto the heads of those named - individually and corporately - as guilty). To coin a phrase much beloved by Rightwing politicians and their media mouthpieces in another context - if they've got nothing to hide, then they've got nothing to fear. Time for a New Zealand inquiry into the banks.


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