Currently, as is so often the case, the aspect of foreign "investment" that is getting media and public attention is that of rural land sales. The twist is that it is not rich foreigners buying high country stations for their own private paradise (although that is still happening) but transnational corporations (TNCs) buying farmland to convert into forests to profit from the latest goldrush of pinus radiata monoculture.

It is good that attention is (currently) focussed on this but it tells only a part (and a small part at that) of the total domination of the New Zealand economy (and politics) by TNCs. Think of the major sectors that affect everyone in the country and you will find that a common denominator is that those sectors are either owned outright by TNCs or dominated by them.

Think banks, to give one very big and very important example. They affect every person and every business and every institution in the country. And the sector is completely dominated - as it has been for many decades - by the four big Australian-owned banks: ANZ, ASB, BNZ and Westpac. I last wrote about them in detail in Watchdog 150 (April 2019, "Time For NZ Inquiry Into Banks: As The Man Said: If Nothing To Hide, Then Nothing To Fear").

Well, spoiler alert, the Government has not followed the lead of its Australian counterpart and held an inquiry into the banks - an inquiry which unearthed all sorts of damning and reprehensible practices and led to heads rolling. The New Zealand subsidiaries of those very same Australian banks have been allowed to carry on business as usual. So, another spoiler alert, they have carried on with the very same things that have led to them being reviled for years. Let's look at the most recent examples of the most egregious corporate misdeeds.

Pulling Out Of Provincial NZ

The banks have been steadily abandoning provincial New Zealand for years. And they have been closing branches not only in the regions but also in the major cities. It's all part of a drive towards a predominantly online banking industry (with accompanying cost savings via job losses and branch closures).

The public and political backlash against relentless branch closures caused the banks to offer a makeshift gesture - they will conduct a 12-month trial of "hubs" in Stoke, Martinborough, Opunake and Twizel, starting from early 2020. These will offer "basic transactional services", featuring "Smart ATM" machines, a support person and online and technology support. That's it - these will not be bank branches as previously known.

Grey Power's Kevin Gardener said: "...that sounds like an employee standing around an ATM giving tutorials on how to use the machine" (Press, 5/10/19, "Banking Critics Doubtful Hubs Will Fill The Gaps"). Christchurch City Councillor Yani Johanson, who had campaigned against the closure of a Kiwibank branch in the poor suburb of Linwood, said: "...in reality, it's a very small response to a major issue. Having a physical (banking) presence and being able to meet with people is very important, not just for rural areas but for urban communities like Linwood" (Press, ibid.). And the hub trial raises the possibility that the banks will decide to share the running costs and close more individual branches.

Hand in hand with cost cutting goes the exorbitant profits made by the Big Four Australian-owned banks. Indeed, their New Zealand subsidiaries are among the world's most profitable banks. In 2018, they made a combined profit of $5.77 billion, which was a new record (up 11.21% on the previous year). "They were generating a return on equity of 18.4%, only behind Canada, which topped 20%. As a comparison, Meridian returned 6.6%, SkyCity 13.91% and Spark 27.75%" (Press, 31/10/19, "Big Banks Generate Big Profits"). Commentators put that down to a lack of competition in the banking sector.

Sam Stubbs, founder of Simplicity, "...said Australian banks were making 20% more from New Zealanders than from Australians, if you took bank profits and divided it by gross domestic product (GDP) per person. 'Bottom line? For the big four Aussie banks, New Zealand is a cash cow'" (Press, ibid.). With those big profits go the exorbitant salaries paid to bank Chief Executive Officers (CEOs). For instance, Wespac NZ's CEO David McLean was paid $2.455 million in the latest financial year.

Bonus Culture

The banks are always looking at ways to screw more money out of their customers. Fees are one way to do so. Another one is to pressure their staff to sell customers financial products (like credit cards, life insurance, etc) that they neither need nor want. Staff are offered the incentive of bonuses to make these unwanted sales.

In November 2018 a joint review by the Financial Markets Authority (FMA) and the Reserve Bank had given the banks a year to get rid of those incentives. That year is now up but it remains to be seen whether the banks have complied. The evidence indicates otherwise. In July 2019 it emerged that ANZ had sacked seven staff who deleted customer e-mail addresses in 2018 to prevent them from giving negative customer feedback. FIRST Union, which represents frontline bank staff, said the bonus culture was to blame (FIRST = Finance, Industrial, Retail, Stores and Transport).

"Former BNZ Chair Kerry McDonald said it should have been a clear warning about banks' internal work culture and - in ANZ's case - firing the staff was not the right way to deal with it. 'It is a real warning sign if staff are too scared to engage in a process because they fear retribution. It suggests there is a lack of trust amongst the staff because if they're too scared to undertake a customer survey they're obviously scared of the response but in a well performing, well-run business, that issue wouldn't occur. It's also a sign of the weakness of the FMA that they didn't do anything about it. They're meant to be a regulator, something like that is a serious warning signal but they simply noted it and didn't respond" (NZ Herald, 3/7/19, "Bank Staff Speak Up On Pressures Of Bonus Culture").

As well as the systemic issues common to all of the banks, there have been recent transgressions unique to individual ones. For example, in July 2019, the Commerce Commission filed High Court proceedings against Westpac, saying that it did not give credit card customers all the information it was legally required to (and it's worth asking, at this point - why is Westpac still the Government's banker, which it has been since 1989?).

BNZ: Money Laundering & $100M Whoopsie

BNZ is owned by the National Australia Bank (NAB). In 2019 a whistleblower leaked internal documents from NAB and EY (formerly Ernst & Young), which provided a fascinating inside glimpse. "In April 2018 its Australian group Chief Risk Officer reported internally that a KPMG audit of the BNZ identified '11 findings that considers placing BNZ at risk of non-compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009'...The stakes were high for banks in mid-2018. The Commonwealth Bank of Australia had been shredded in the media for failing to prevent crooks laundering money through its smart ATMs and was just two months away from agreeing to pay $A702 million to settle the case with regulators...".

"The Bank of New Zealand has struggled to comply with laws meant to prevent criminals and terrorists laundering money through its accounts. But leaked internal documents reveal that the bank has been more concerned about suffering reputational damage than action from authorities over its potential non-compliance with the law...BNZ was confident it would not be pinged by New Zealand authorities and rated the risk of fines as 'minor', though it worried about the public finding out, and its reputation being damaged" (Press, 5/8/19, "Behind The BNZ Veil": "The BNZ Files", Special Report, Rob Stock & Adele Ferguson).

The BNZ Files also revealed some more prosaic human errors - in February 2017, a banker from its financial management unit was showing one of the bank's Treasury team how to make a major institutional transaction. A demonstration payment of $100m was set up to go into Foodstuff's account, but was then mistakenly authorised, rather than cancelled. Foodstuffs returned the money a few days later (Press, 3/8/19, "BNZ's $100 Million Foodstuffs Stuff-Up", The BNZ Files, Rob Stock & Adele Ferguson). By contrast, the biggest amount mistakenly deposited online into CAFCA's account by a stranger - thus far - has been less than $2,000. Think what we could do with the odd $100m arriving via an errant key stroke (the modern equivalent of falling off the back of a truck).

In November 2019 BNZ announced a $1.02 billion profit for the financial year, outperforming its NAB parent's result in Australia. At the same time, it announced an extra two weeks annual leave for its NZ staff, taking the entitlement to six weeks. But this was not all that it seemed. "It came with the removal of ten days' 'domestic leave' a year, which staff had been able to use when they needed to care for sick family members. Bonuses and other perks were also cut".

"The head of Massey University's Public Relations programme, Chris Galloway, said it was 'framing at its worst. A kind of corporate sleight-of-hand. It is also indicative of a lofty attitude to staff - who, actually, are unlikely to be stupid. Staff will quickly work out that what is being given with one hand is being taken with another. This is not only a bad idea per se but even more so because of the bank's $1 billion financial result. It may well make staff feel - even more than they might already - that they are taken for granted'" (Press, 9/11/19, "Staff Anger At Terms Of BNZ Leave Offer").

ANZ: Ponzi Scam Enabler

But the prize for Bastard Bank for 2019 definitely goes to ANZ. Let's start with the out of pocket New Zealand investors who lost a combined $110 million in the 2012 collapse of the country's biggest Ponzi* scheme - Ross Asset Management (David Ross is currently serving a ten-year prison sentence for fraud). These investors only discovered in 2019 that ANZ had battled in court for more than three years to stop anyone knowing about a Financial Markets Authority (FMA) investigation into the bank's role in the Ross Ponzi scheme.

* "A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from product sales or other means, and they remain unaware that other investors are the source of funds" (Wikipedia). Named after Charles Ponzi, early 20th Century swindler and con artist.

The legal battle - which ANZ lost - was so secret that investors didn't even know that there had been a court case. The Supreme Court ruled in favour of the FMA in April 2019, allowing ANZ to be named as the organisation in question. Those investors promptly announced that they are suing ANZ for tens of millions over how it managed Ross Asset Management's accounts.

ANZ: Calls For John Key's Head

Then there was the Reserve Bank censuring ANZ, stripping it of its right to calculate how much risk capital it requires due to a "persistent failure in its controls and attestation process" (Stuff, 17/5/19, "Reserve Bank Censures ANZ For 'Persistent Weakness In Process'"). The Chairman of the ANZ Board is none other than our old mate, Sir John Key (who is also on the Board of ANZ's parent bank in Australia).

The Reserve Bank censure led to the extraordinary spectacle of Kerry McDonald, who was BNZ's Chairman for 12 years until 2008, writing to the Reserve Bank Governor, Adrian Orr, demanding that Key should resign "or be removed", and that several senior ANZ executives, including the CEO, should also resign. McDonald (well known to CAFCA as the 1988-2003 CEO of Comalco NZ) accused the ANZ Board of incompetence. For good measure, McDonald also later lambasted the Reserve Bank as "weak and ineffective".

This very public attack by one pillar of the capitalist class on the most recent darling of that class, none other than good old John Key, quickly attracted the attention of the media, leading to headlines such as "open war", "Wild West banking culture" and questions being asked about why nobody had been held accountable for ANZ's multi-million-dollar stuff up which led to the Reserve Bank censure. The headlines kept coming throughout 2019 and told their own story: "Blithe Key's An Ad For Tougher Bank Regulation", "Key Unlocks ANZ Arrogance", "ANZ Provides A Handy Cudgel For Bank Reform", "ANZ's Trust Problem Festers", "ANZ Still Doesn't Get It", "Key's Dual ANZ Roles 'Serious Mistake'", "Falling Profit And Reputation".

But - another spoiler alert - at the time of writing, John Key remains exactly where he was, ensconced as ANZ's NZ Chairman and a member of the Australian Board. Key abruptly quit as Prime Minister at the end of 2016, and resigned from Parliament shortly thereafter, probably thinking he'd slip back into a nice peaceful life in his former highly lucrative world of finance. It has turned out to be an unexpectedly bumpy ride for him. To turn one of his own signature catchphrases from his years as PM against him: "Get some guts!" - and resign from ANZ. You're giving it a bad name.

ANZ CEO: Expenses Fiddled, Dodgy House Sale

Now, all of this can be viewed as a technical argument between regulators and bankers, and between fellow members of NZ's 1%. But what happened next for the ANZ was perfectly understandable for what Key's successor as Leader of the National Party delights in calling "everyday New Zealanders". In June 2019 ANZ suddenly announced the resignation of its NZ CEO David Hisco "amid an internal review of personal expenses". Specifically, that he had "recorded tens of thousands of dollars of personal expenses for storing wine and cars as business expenses".

Fiddling the expenses wasn't the end of it, as things went from bad to worse for both ANZ and Hisco on the public relations front. That same month (June 2019) it was revealed that Hisco's wife had bought the couple's Auckland home from ANZ for a "startlingly low price" in 2017. Now, if there's one thing that us everyday New Zealanders take notice of more than some grossly overpaid CEO fiddling his expenses, it is Auckland's stratospheric house prices.

ANZ bought the house in 2011 for $7.55 million but sold it to the boss' wife for $6.9 million in 2017. That's not the way Auckland house prices have trended in recent years, certainly not those in the multi-million-dollar price bracket. Funnily enough, ANZ's top management was not keen to explain this lossmaking sale of one of the bank's own real estate assets. Not surprisingly, the Financial Markets Authority decreed that the bank broke the rules and should have disclosed it, as a related party transaction.

This led to more damning headlines e.g. "ANZ Disclosure Fail Glaringly Obvious". And just to show that luxury house sales were all in the family, it was revealed that John Key sold his luxury beach house to David Hisco for $3.1 million. By contrast with these cushy deals, featherbedding and lack of accountability at the top, frontline staff who transgress are shown no mercy - as I've already detailed, above - in July 2019 it emerged that ANZ had sacked seven staff who deleted customer e-mail addresses in 2018 to prevent them from giving negative customer feedback.

A Reserve Bank Governor Who Takes Job Seriously

So, business as usual at the banks. But one thing is now different - there is a Reserve Bank Governor, Adrian Orr, who is actually prepared to take seriously his job of regulating the banks and to have a go at them. This has definitely not been a feature of previous Governors. Orr has been prepared to be critical of people sitting on both the NZ and Australian Boards He didn't name John Key but he didn't have to. He personifies that obvious conflict of interest.

More importantly, Orr has demanded that all the banks increase the amount of capital they hold in reserve in the event of a major financial crisis a la the 2008 one. Commentators have estimated that this could mean the banks having to raise an additional $20 billion. Naturally, the banks complained bitterly about this and said it would lead to them sharply increasing borrowing costs, specifically to farmers. The Governor hit back: "Orr said New Zealand's banks are the third most profitable in the world and he is confident they can meet the increased requirements and still make good returns without hiking borrowing costs significantly" (NZ Farmers Weekly, 3/6/19, "Orr: Banks Misleading Farmers").

The ANZ threatened to pull out of New Zealand if the Reserve Bank persisted in its demand that capital reserves be increased. This led to John Key being contradicted by none other than his long time Minister of Finance and successor as Prime Minister, Bill English (now Sir William English), who told an Australian audience:

"Threats to withdraw capital is, to a large extent, bluff. Australian shareholders and Australian banks do very well out of New Zealand. They generate good returns. I think they will stick around. So far, for all the bluster over the last 15 years, no Australian bank has taken its capital away. What does that tell me? What should it tell you? Don't believe what they say - watch what they do" (quoted in Scoop, 11/7/19, "Gordon Campbell On the Aussie Banks' Latest Excuse For Jacking Up Bank Fees"). Yet another spoiler alert - ANZ has not gone anywhere. It has just adopted a tactic straight out of the play book of the transnational owners of the Bluff smelter (of which Kerry McDonald was CEO for many years) - threaten to leave the country unless the authorities dump something that is not to your liking.

"The reality is the big banks have had it easy with the Reserve Bank for many years. They've been allowed to monitor their own capital since 2008, which has resulted in ever-increasing profits, large enough to make us the crown jewel of profitability for all the Aussie banks. The numbers are staggering, over $1.4 million a day of after-tax profits, return on equity averaging 12-18% through economic cycles, and 90% market lending share".

"On average all the big banks here make 20% more from a New Zealander than an equivalent Australian, and have done so for many years. That's meant fat salaries and bonuses for bank executives. More capital to protect depositors means lower profits and bonuses for the banks, so their resistance is understandable" (Stuff, 5/7/19, "The Banks Are Roaring Like Cornered Animals; We Should Let Them"). The Reserve Bank was not intimidated by the pushback from the banks and, in November 2019, ordered the BNZ to add $250 million to its capital reserves (bringing them up to $600m), after having earlier reprimanded ANZ and Westpac for the same under-reporting of risk.

Commission Of Inquiry Needed

CAFCA repeats our call for a commission of inquiry into the banks, following the precedent set in Australia. We have plenty of company in this. "The most powerful thing about the Australian Royal Commission, however, has been to end the banks' and the regulators' ability to carry on with business as usual. It brought to the surface a great deal that was not known, and left the banks in no doubt that the storm would not blow over and they could go back to the profits-friendly status quo of don't-ask-don't-tell. And that's precisely why we need a banking royal commission in New Zealand"

"We have been developing a culture of more muscular regulators, representing a continuing shift away from the failed 'caveat emptor/buyer beware' economic model New Zealand once embraced...Politicians in Australia can no longer buddy up to the banks or swallow their behind-the-scenes lobbying, which amounted to the philosophy:"

"What's good for the banks is good for the country, and anything you do that reins the banks in damages the economy. They can no longer starve the regulators of the resources they need to do their jobs to protect the public and the economy. Now, wouldn't we want that for New Zealand?" (Press, 5/8/19, "It Can't Be Business As Usual. We Need A Royal Commission", Rob Stock). CAFCA seconds that motion.