Day 343: 'Not the CBA he knew'
An introductory weekday newsletter from Schwartz Media. Counting the days since the banking royal commission was established.
Good afternoon and welcome to day 343.
Today in summary: Westpac chief Brian Hartzer says the bank had a “difference of opinion” with ASIC on its obligations, but didn’t bother to tell the regulator; mounting risk scandals had little impact on executive pay at the Commonwealth Bank; and junk insurance refunds could cost the banks more than $1 billion.
-- Charis
Current banker panic level: 😱😱
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Westpac chief Brian Hartzer this afternoon stepped into the Hayne royal commission box to questioning by Michael Hodge QC, and it didn’t take long for things to turn frosty. After a lengthy back and forth about Westpac's refusal to take up ASIC's recommendation to stop offering credit card limit increases, Hartzer said “you can have different points of view within risk”. He later said the bank would handle things differently now. His one regret was that no-one at the bank told the regulator about the difference of opinion.
“It concerns me that we didn’t engage with the regulator when that point of view was pointed out, and that, to me, is where we clearly went wrong in this case.”
Commonwealth Bank chairman Catherine Livingstone told the Hayne royal commission working out how best to reward senior executives was the board’s “biggest conundrum at the moment”.
The commission also heard that despite CBA juggling the CommInsure scandal, the anti-money laundering issue, the fees for no service issue, and the mis-selling of credit card insurance, deputy CEO David Cohen didn’t think any short-term bonuses should be cut. In the end, the board reduced the wealth group executive's bonus by 5% due to the CommInsure scandal, a move Livingstone today said was “inadequate”. Former CEO Ian Narev received 108% of his short-term target bonus.
We also heard former chairman David Turner was asked to give back 40% of his pay from the final year on the board, but refused.
Livingstone: “the chair – the former chair did not agree to return any of his fees.”
Orr: “And what has he communicated through one of your colleagues?”
Livingstone: “He communicated that – and I’m paraphrasing because I obviously didn’t have the direct conversation – that he didn’t recognise in the Apra report the CBA board that he knew.”
Orr: “I’m sorry, could you say that again? I didn’t hear that.”
Livingstone: “That he didn’t recognise in the Apra report the CBA board that he knew.”
Refunds for junk insurance polices the banks have sold could tip over $1 billion according to the Consumer Action Law Centre. The Centre’s director of policy and campaigns Katherine Temple told the AFR:
“Banks and insurers have known about problems with junk insurance for years. Add-on insurance is a known rip-off but financial institutions kept selling it because it was so profitable, despite clear warning signals from overseas and at home.”
She said mis-selling of similar products in the UK had cost banks up to £40 billion.
Today’s burn prize: CBA Chairman Catherine Livingstone
🔥🔥🔥
Orr: "This is the official record of the minutes of a meeting of the board of CBA at which very significant matters were discussed. If you challenged the regulatory report and were provided with assurances by management in response to that challenge, should they appear in this official record of that meeting?"
Livingstone: "Ms Orr, it's not possible for minutes to record every single question in a board meeting, and most of the questions are, in fact, very serious questions. That is the purpose of the board meeting."
Orr: "Well, is that satisfactory, Ms Livingstone? CBA has a statutory obligation under the Corporations Act to keep minute books. You're aware of that?"
Livingstone: "I am."
Senior Counsel Rowena Orr takes Catherine Livingstone to task for saying it was at the October 2016 board meeting that she challenged management over concerns about anti- money laundering compliance.
The Commentariat
The royal commission has uncovered a multitude of banking and investment management sins but it has never addressed the complex question of how we got to this position, writes The Australian’s Robert Gottliebsen.
“Australian’s bank regulators were slow to recognise that the culture of banks had totally changed from being customer focused and conservative into organisations where the shareholders, and risk taking had become paramount. And profit-driven bank executives often saw the regulators as a hazard to be overcome.”
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