It has been a year of dragging out the dirty laundry of Australia’s banks: appalling scandals, executive inaction and bad decisions that hurt customers.
The banking royal commission has finished its public hearings and will present its final report in February, with recommendations to cleanse the sector.
But to understand how bank executives have reacted to the considered, learned questions of the commission — and the more impertinent ones I ask as they’re fleeing the building — all you need to do is dip into NAB’s examination this week.
CEO Andrew Thorburn and chair Ken Henry were both witnesses this week, offering starkly different takes on the harsh sunlight filtering through to previously opaque banking practices.
Mr Thorburn looked pained throughout his testimony, frequently referred to his three-decade career as a banker, and his surprise at the hurt exposed in the case studies and complaints brought to his attention by the royal commission.
After a parliamentary inquiry in Canberra this year, Mr Thorburn met with a score of bank victims whose stories have not been case studies at the commission, including Queensland farmer Bill Mott.
Drawn back to the first rounds of hearings, about consumer finance, he displayed extreme honesty about a dodgy loan scheme called the ‘Introducer Program’ that rewarded accountants, lawyers, and even tailors and gym owners, with lucrative commissions for pushing customers towards NAB.
“We put the bait right there for people. Right there,” he said, using an analogy from one of his favourite hobbies, fishing.
“Now, they stepped over the line. That’s their own decision. I’m not excusing that. But we put incentive schemes in place which caused to reinforce and quick repeat cash. [Mr Thorburn snapped his fingers for emphasis.] Not good.”
The scheme continues, but with changes and improved supervision. Not that NAB’s home loan problems are over.
Customers’ ‘money fell into NAB’s pocket accidentally’
NAB was also skewered over fees for no service, its lax remediation of customers and the culture that caused both issues.
Initially NAB wanted customers to apply to have their fees reassessed. To put it more clearly: they wanted customers — unaware that money had been removed from their account — to have to ‘apply’ to get a judgement on the loss of cash they didn’t even know had been taken.
Regulator ASIC knocked that down dead, but the bank still hasn’t worked out how to refund its share of the banking industry’s $1 billion problem, for at least 85,000 clients it had wrongly charged for years.
The lack of care was shocking. As commissioner Kenneth Hayne put it to the CEO:
Hayne: “The other words are that this money fell into the pocket of NAB accidentally. Isn’t that the proposition?”
Thorburn: “Well, I can’t disagree with that, Commissioner. Like, it wasn’t intended to be ours but it became ours. Yes.”
In Mr Thorburn’s testimony there was some contrition. An understanding of the problem. A desire for change.
Perhaps, perhaps, perhaps
The most charitable thing you could say about the subsequent performance of NAB’s chairman, Ken Henry, was that he was demonstrating the independence of the role.
In a display that visibly and verbally appeared condescending, petulant and dismissive, Dr Henry came across as the arrogant face of banking — openly scoffing at questions from Rowena Orr QC and talking under his breath.
The former Treasury secretary described negotiating with corporate regulator the Australian Securities and Investment Commission as akin to dealing with kids:
“On occasions, it’s almost like that game that children play — you’re getting colder, you’re getting warmer.”
It went on.
Internal bank documents from 2015 didn’t record that NAB thought it had broken the law in the fee-for-no-service scandal. That’s despite the bank already having made the legal notification of a formal breach to ASIC, noting at least 12,000 customers had been charged $2 million in fees for no service.
The reason? Senior counsel assisting, Ms Orr, tried to divine Dr Henry’s resistance to admitting the omission.
Orr: “Surely someone within your business at that point was thinking about whether this conduct contravened the law, and, if so, how it contravened the law?”
Orr: “Surely those were matters that the chief risk officer should have reported to the risk committee?”
Orr: “Back to where we started, ‘perhaps’, Dr Henry?”
Henry: “Yes, perhaps.”
Orr: “And I’m afraid I still don’t understand the reason for your hesitation?”
Henry: “I probably can’t explain it to you.”
Despite the mounting scandal, NAB decided not to cut executives’ bonuses for the 2016 financial year. (The same issue, same year, was dragged out of Commonwealth Bank the week before).
Dr Henry had concerns, but they were allayed on the condition the CEO and executives sent a “strong message” about risk management to all staff.
‘We’ve got to get this right’
The banking industry has a strong message now. The public despise them.
Tens of thousands of honest bankers, who understandably held a position of great trust in the community, have been tarnished by the actions of a few, but the culture of many.
The royal commission now adjourns to complete its final report by February. It will contain recommendations for change — and potentially for the laying of criminal charges — and be released amidst the tinderbox of an imminent federal election, most likely to be held in May.
If banking is to change, to focus on customers and root out wrongdoing, it probably needs to listen to Mr Thorburn’s testimony.
“We’ve got to get this right,” he said, passionately and in full flight.
“We surely can’t have this every year…”
Those in the room, including the commissioner, went wild with laughter.
Mr Thorburn smiled, realising the import of his words.
Counsel assisting, Michael Hodge QC, eventually stopped laughing, smiled and said: “We all agree on that.”