Banks CEO’s cop a grilling

Ross Greenwood speaks to Labor MP and Economics Committee Deputy Chair Matt Thistlethwaite after Commonwealth Bank CEO Matt Comyn and Westpac CEO Brian Hartzer fronted a parliamentary committee and admitted they took too long to address misconduct uncovered by a royal commission.

Introduction: Banks CEO’s cop a grilling

Ross Greenwood:  Great to have your company here on Money News on Thursday, October 11, 2018, a day when the stock market fell very heavily down by 2.75%, which is about $54 billion wiped off the market capitalization of Australia’s share market today. The All-Ordinaries index fell 170 points, so it’s a big fall. It raises some questions, to be honest, and that is, is Australia in a position really to weather and withstand in reasonable shape a significant economic downturn?

Bear in mind that Australia’s debt right now sits at around $60 billion, that’s the gross debt. The net debt sits at around $36 billion and you won’t start paying down that debt until one of two things happens. You either get back the surplus, which is supposed to be in around 18 months time or indeed, just start to sell some stuff off. Otherwise, if you’ve got to pump prime the economy, get the economy going during an economic downturn, you’ve got to increase those debts significantly.

The other option is that you could cut interest rates. Problem is, right now– and this is part of the reason why the stock markets have fallen– is the US is raising interest rates in response to its improving economy. Here in Australia, because of the level of household debt and fears that, if house prices fall or interest rates rise, that there would be significant harm in the Australian community. The Reserve Bank has not moved interest rates at all and is not likely to.

While US Federal Reserve is likely to increase rates again in December, and then again three times next year as the forecast, Australia is likely in that time to do nothing. That means the gap between the US and EU becomes greater, but as those rates rise in the United States and there’s fears about trade wars between the United States and China as, also, you’ve got Hurricane Michael sweeping through, causing terrible destruction that clearly has to be paid for to be rebuilt.

What you’ve got is then concerns that are weighed on the stock market. Hence, the US stock market last night fell some 3.1%, again, one of its biggest falls this year. In response to this, however, the US president Donald Trump was asked about this and in particular about the Federal Reserve, the equivalent of Australia’s Reserve bank and its own interest rate settings. Here’s what he said against the background of aircraft noise.

Trump: I think the Fed is making a mistake, they are so tight. I think the Fed has gone crazy. You can say that, “Well, that’s a lot of safety, actually,” and it is a lot of safety and it gives you a lot of margin but I think the Fed has gone crazy.”

Ross Greenwood:  There you go, that is what he said, “The Federal Reserve has gone crazy.” Now, curiously enough, off the back of this, I sort of wondered out loud as to what our own Prime Minister might have to say about our own reserve bank here. I did ask, when I spoke with the Prime Minister Scott Morrison a little earlier, exactly that question.

Scott Morrison: No, I wouldn’t and you know I wouldn’t, Ross, and I certainly didn’t when I was Treasurer in that it’s not for me to offer commentary on other leaders and the choices that they make. I mean, we did see a number of years ago when the Fed made its first move, we did see a pretty similar reaction in markets at that time.

Ross Greenwood:  Now, the Prime Minister was speaking with me because today, he’s decided that he will bring forward small business company tax cuts by five years. Effectively starting in two years time in the financial year 2021. The reason he’s able to do that is because the tax cuts to big business basically got knocked on the head. As a result, there’s about $3 billion to be spent on bringing forward these tax cuts.

The interesting side about this is that clearly, the government now wants to, if you like, pump up those small businesses, but there would be big businesses with a 30% tax rate, small businesses with turnovers of under $50 million a year with a tax rates of 25%, ultimately. Individuals, who earn more than $180,000, tax rates of 47c in a dollar plus. Those between 30– or rather $87,000 dollars a year and $180,000 a year? Well, their tax rate’s right now 37c in a dollar.

Small business tax rate, 25c in a dollar. Against the backdrop of this big conference today. At that conference was the former Treasurer, some say the greatest Coalition Treasurer ever. Whether that’s true or not, that can be debated. This is what Peter Costello had to say in advance of the speech by Scott Morrison.

Peter Costello: When Malcolm Turnbull launched a challenge against Tony Abbot for the leadership of the Liberal Party, he said two things, not just one thing, two things. He said, “The coalition had lost 30 news polls in a row and they had no economic narrative.” I would agree with that but then I kept on waiting for the economic narrative to come and I’m not sure that it did. I think this is the problem today. I’m not sure what the narrative is amongst those who are making these decisions for us.

Ross Greenwood:  That’s what he said. Bear in mind that the very next person up to speak was the Prime Minister, Scott Morrison, who has been the Treasurer and then Malcolm Turnbull and therefore responsible for that economic narrative. I put that to the Prime Minister.

Scott Morrison: Well, look, I don’t share Peter’s view. I respect Peter, I think he was Australia’s greatest ever Treasurer, but that doesn’t necessarily mean that he and I have to agree on everything but what I do know, as Treasurer and working with the previous Prime Minister, we achieved the single largest growth in jobs in a year that we’d ever seen on economic record.

Ross Greenwood:  There you go. That is what’s taken place. It will no doubt dominate. Then, as I pointed out to him, imagine the next advertising campaign for Labor. They’ll just pull out Peter Costello, saying they’ve got no economic narrative. That’ll be the Ed. Of course, the response is, “We do.” That’s already said and done. Anyway, while that’s taking place the other point that there’s been some political embarrassment to the government. Initially, they did not want a Royal Commission into our banks, but now have had to concede that yes, it has been very much useful. Then we’ve now got a new Royal Commission about to be had into the age care sector and, potentially, even one into electricity and energy prices.

The Royal Commission is now seeing the aftermath, and that is the House of Representatives Economics Committee, a committee that’s actually investigating the bank Chief Executives. Today, two of those Chief Executives in front of this Committees, Matt Comyn the Chief Executive of the Commonwealth Bank, Brian Hartzer, the Chief Executive of Westpac. When Matt Comyn was asked about how many people he saw, this is what he said:

Matt Comyn: As I said, I have spoken to a number of customers. Some over the phone, some face-to-face.

Interviewer: Can you give us a sense, Mr Comyn, of how many customers you might have spoken to so far?

Matt Comyn: Face-to-face, less than ten, of which I am seeing one today, who may be in the gallery. I’m not sure but I know has travelled inter-state and offered to see me, knowing that I’d be in Canberra today and I very happily took them up on that.

Ross Greenwood:  Less than ten, since he has been in the job; but only a short time, it would be fair to say. Brian Hartzer has been in his job as the boss of Westpac for a much longer period of time. He admitted that he’s seen none of the victims whatsoever. The Deputy Chair of the House of Representatives Economics Committee, and who was there giving the questioning to these chief executives today is Matt Thistlethwaite, who is on the line right now. Many thanks for your time, Matt.

Interview with: Matt Thistlethwaite, Labor MP, Deputy Chair Economics Committee

Matt Thistlethwaite: G’day, Ross. Great to talk to you again.

Ross Greenwood:  All right. Given the fact that the banks’ chief executives have really escaped the inquisition and grilling from the Royal Commission, is it important that your parliamentary committee, which represents all sides of the parliament, really has its chance to have a go and get some information out of them.?

Matt Thistlethwaite: Yes, certainly is, Ross. The interim report at the Royal Commission has been handed down and we took the opportunity today to call those bank executives down to Canberra and ask them some questions about that, but predominantly why they haven’t been meeting with some of the victims. There’s about 10,000 submissions to the Royal Commission. Many of those are victims of some of the scandals and rip-offs that have occurred in banking and finance over the last decade and they feel aggrieved. They feel that they haven’t had their cases heard by the Commission. Many of them travelled to Canberra today and sat in the gallery and their anger was palpable when the bank executives and CBA and Westpac were giving their evidence.

Ross Greenwood:  I’ll tell you one thing, Matt though, it’s problematic because if everybody who has a grievance– and I understand there are key issues that have got to be brought out– but the one thing about the Royal Commission, it’s tried to hit the targets along the way and use the individuals as a case study. It’s not almost, like I would suggest, a confessional, where everybody gets whatever they have got off their chest. The fact that I might have a grievance, a small one with my bank, it’s got to be somehow managed because otherwise, this thing will go on for ad infinitum. It’s got to be wrapped up, it’s got to hit the key issues, it’s got to fix the banking system and move forward surely.

Matt Thistlethwaite: We appreciate that. Labor’s been calling for a royal commission for a couple of years now because we have known that there were systemic issues within the industry, and that people have been ripped off for too long. That’s why we called for the Royal Commission, but at some point we want to reinstall trust and confidence in our banking system. It’s vitally important to the health of an economy. To do that, we we think that the Royal Commission needs to provide confidence to people who’ve been aggrieved that their cases have been heard, they’re being looked at and they can get justice and importantly, whether theres changes to regulations or rules that are required, those recommendations will be made and adopted by government. We want to see this as a successful process as well. When you’ve got thousands of people saying that they feel that they haven’t been heard, I think there’s an issue there.

Ross Greenwood:  Matt, do you get the sense that the chief executives you’ve been speaking to, that they’re genuinely humble in the face of the accusations made inside the Royal Commission? Even the findings of that Royal Commission? Or do you get the sense that they’re simply trying to weather the storm to manage this, to manage the process and to get to the other side? What’s your take on the way in which their body language and the way in which they’re responding in this inquiry, picks up that message?

Matt Thistlewaite:  They’ve certainly said the right things today. They all accepted that they were wrong to oppose the Royal Commission for as long as they did. They all accepted that they’ve been, they said, genuinely shocked by the evidence that’s come about. Many of the activities of the organizations that they’ve headed up– and that they do want the cultural change within their organizations– they want to make sure that the systems are in place to ensure that these scandals and rip-offs don’t occur again.

I think that they’ve got to do a little bit more in terms of dealing with some of the issues, particularly some of those people who’ve had matters with banks that have been going on for four or five years, Ross, that have gone through situations where they’ve lost their home, they’ve lost their life savings, the anxiety, the depression, the mental stress that’s come with a lot of these cases. I don’t think it’s been appreciated by many of the senior managers and CEOs of these organizations. I think that they can do a better job in listening to some of those concerns and dealing with them.

Ross Greenwood:  How do we reconcile the fact that we want to have strong banks in our community? That they came through a global financial crisis without collapsing and, therefore, going back onto the taxpayers and costing enormous amounts of hurt and taxpayer dollars. That was because, of course, they were making certain they were strong and that the shareholders were well rewarded, against the other aspect of it is that they’ve got to be there for the customers and extra regulation clearly is going to trim their profits, trim their returns. It’s a fairly finely-balanced thing, because if we, potentially, see the stock market fall today, heading into another global downturn, trying to balance up what you want out of your banks, whether you wanted them to be safe or whether you want them also to be looking after all of the clients’ every needs, it’s again a balancing act, I would have thought.

Matt Thistlewaite:  You’re quite right Ross. That’s the big challenge for the Royal Commissioner and for governments that have to deal with those recommendations. You don’t want to over-regulate the industry, but at the same time you want to make sure that people are protected and that the banks are actually acting in their best interests. For some time now, we’ve seen an increase in regulation in this area because of some of the scandals and rip-offs that have occurred, particularly the Future of Financial Advice reforms where our best interests duty was introduced.

Unfortunately, some of the evidence that’s come out of the Royal Commission is that although these best interests duties are there, the bad behaviors have been continuing. The regulator have been slow to pick up some of this behavior, the fines. The actions that they’ve taken to punish those involved have been inadequate. Some of the scandals have continued. That’s the great challenge for the Royal Commission. We all want to see a strong banking sector but how do you get that balance right?

Ross Greenwood:  Of course, you have the bosses of the ANZ bank, Shayne Elliott, plus also you’ve got the boss of the National Australia Bank coming through also in the next little while. Matt, we’ll allow you to go and do your very best in trying to get more information out of them. We appreciate your time here on the program this evening.

Matt Thistlewaite:  It’s a pleasure Ross. Thanks.

Ross Greenwood:  Matt Thistlethwaite is the Deputy Chair of the House of Representatives, Economics Committee, the Labor member there. Those committees are important because remember that the bosses of the big four banks have not appeared before the Royal Commission. This is the chance where they’re put into a public forum and really put through the griller. We got more money news coming up.

 

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Image source: 2GB

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