Day 536: 'Weakest in the bunch'
Counting the days since the banking royal commission was established.
Good afternoon, and welcome to day 536.
Today in summary: Afterpay has launched in the UK and is also talking to AUSTRAC about breaches of money laundering laws; AMP says policy changes to the Pension Loans Scheme will boost retiree bank balances; Bank of Queensland appoints George Frazis as new CEO; and ANZ is battling backlash on its rate decision.
-- Alex
@AlexESampson
Current banker panic level: 😓🤑🤑😓🤮
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Afterpay has launched its buy now, pay later service in the UK market. In an update to the ASX this morning the buy-now pay-later service also revealed its US expansion is performing well and on track, producing A$1.7 billion in annualised underlying sales.
Shares in the company spiked yesterday when it announced new partnerships with retailers including Levi’s and Ray-Ban, and dropped today after Afterpay reported being in talks with government financial intelligence agency AUSTRAC about potential breaches of anti-money laundering laws.
Afterpay last year amended its anti-money laundering framework, including external identity verification. It today said the outcome of talks with AUSTRAC were “yet to be determined”, but assured the stock market Afterpay had not identified any money laundering or terrorism financing activity in its systems “to date”.
Afterpay also updated the market that it had cancelled its Australian Credit License because it did not intend to bring a traditional credit product to market.
The Australian | SMH | AFR
AMP says incoming policy changes to the Pension Loans Scheme will boost retiree bank balances. Federal government changes to the scheme, announced in the 2018 Budget and allowing retirees to boost their income through a reverse mortgage on the family home, come into effect on July 1. AMP technical strategy manager John Perri said a reverse mortgage “could be a way for cash-poor retirees to unlock equity in their homes to help pay for day-to-day expenses”.
AMP modelling shows a single person would now be able to borrow up to A$36,000 a year and a couple could potentially borrow up to A$54,000 a year. Part or full age pensioners can borrow the difference between the current age pension and the maximum 150% rate.
Bank of Queensland has named Westpac executive George Frazis as its new chief executive. BOQ said Frazis - who most recently ran Westpac’s retail bank - would begin in the role on September 5. BOQ chair Roger Davis and chair elect Patrick Allaway welcomed Frazis’ “strong and demonstrated risk management focus”.
The Australian | SMH | AFR
ANZ raised the deposit rate for its 11-month term deposit by 80 basis points late yesterday afternoon. This came after the bank decided not to pass on the RBA’s full rate cut on Tuesday, saying it would penalise people who relied on interest income. The move was after ANZ decided last week to cut short-term deposit rates by up to 25 basis points. Amid backlash it appears the bank has now put its money where its mouth is, but has still received criticism from all sides.
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Today’s burn prize: Health Employees Superannuation Trust Australia CEO Brett Himbury
“They can just get on and do their job and not be confused and conflicted by other stuff.”
Himbury says bankers are moving to not-for-profit superannuation funds because the focus is on returns to members without having to worry about hitting performance targets and attracting new clients.
The Commentariat
Words and deeds are needed to rebuild trust in the banking sector, writes Herbert Smith Freehills Global Banks Sector Group co-chair Tony Damian in The Australian.
“It remains for leaders to take up the task and align their organisations, their cultures and their people accordingly. That is how change will occur.”
ANZ CEO Shayne Elliott has shot himself in the foot, writes companies, markets and the economy commentator Elizabeth Knight in the SMH.
“Among its large rivals, ANZ is competitively disadvantaged. Due to its small size, tight margins, and lack of hedging, it could least afford to pass the RBA rate cut on in full. The bank finds itself caught in a no-win situation. Elliott got set up by the other banks. ANZ is now a public relations pariah and has outed itself to shareholders as the weakest in the bunch.”
UTS Business School corporate governance experts Peter Fleming and Carl Rhodes argue the rise of corporate social responsibility could turn sinister. They warn big companies, such as banks, are using “do-gooding” to convince consumers they are taking over responsibilities that were “traditionally located with elected governments and paid for through tax”.
“This begs the question on so many employees’ lips today. Would you rather have unelected CEOs such as Alan Joyce or Shayne Elliot looking after Sydney’s air quality and your child’s place in preschool or a properly functioning government?”
Treasurer Josh Frydenberg is preparing for a crackdown on superannuation as he heads off on a “12-day trip to learn first hand about the slowing global economy”, according to The Australian’s columnist John Durie.
“Frydenberg and his super and financial services assistant minister Jane Hume are expected, according to industry talk, to end the nexus between union awards and default funds, to give employees more power over fund choice. The industry believes the government is also opposed to plans to increase the superannuation guarantee from 9.5 to 12% and is expected to formally freeze payments at near the present level.”
Experienced director and advisor to boards Colin Carter argues in the AFR via the Harvard Business School Press that the business response to the Hayne royal commission must tackle some key problems in governance and pay, and argues to end senior executive short-term bonuses.
“Bonus schemes are complex because investors want ‘proof’ that pay reflects performance. This sounds reasonable but with STIs it is a fool’s errand. Outcomes in any period mostly reflect management’s actions in prior periods. The link between performance and outcome isn’t there.”
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