tag:theconversation.com,2011:/ca/topics/national-australia-bank-14322/articlesNational Australia Bank – The Conversation2024-02-27T10:02:25Ztag:theconversation.com,2011:article/2238212024-02-27T10:02:25Z2024-02-27T10:02:25ZWorried about price gouging? For banks, there’s a simple solution<p>Does it feel like you’re being charged more for all sorts of things these days, from <a href="https://theconversation.com/supermarkets-airlines-and-power-companies-are-charging-exploitative-prices-despite-reaping-record-profits-222755#:%7E:text=According%20to%20the%20inquiry%2C%20the,dairy%20products%20and%20breakfast%20cereals.&text=Farmers%20recently%20accused%20supermarkets%20of%20making%20too%20much%20profit%20from%20their%20crops.">groceries</a> to <a href="https://theconversation.com/see-when-australias-biggest-banks-stopped-paying-proper-interest-on-your-savings-and-what-you-can-do-about-it-200265">banking</a>? Turns out, you’re right.</p>
<p>While we might be more likely to remember prices that go up than prices that go down, the very best evidence – assembled by Australia’s <a href="https://treasury.gov.au/sites/default/files/2023-11/competition-review-mergers-background-note.pdf">Treasury</a>, the federal government’s lead economic adviser – says your suspicions are right. We really are being charged more than we used to be two decades ago.</p>
<p>Coupled with the latest profit reports from Australia’s biggest supermarkets and banks, including Tuesday’s half-year results from Coles, it suggests we are contributing more to company profits than we used to.</p>
<h2>Climbing price markups</h2>
<p>The Treasury estimates show in the 13 years between 2003-04 and 2016-17, the average price markup – the difference between the cost of a product and its selling price – across all Australian industries climbed 6%. </p>
<p>That’s extra profit, taken from your wallet, going to the people selling you things. </p>
<p>Those Treasury estimates are contained in a background paper prepared for the competition <a href="https://treasury.gov.au/review/competition-review-2023">inquiry</a> being undertaken by a panel including Productivity Commission chair Danielle Wood, former Competition and Consumer Commission chief Rod Sims, and business leader David Gonski.</p>
<p>At the same time, the average share of each industry held by its biggest four firms edged up from 41% to 43%. </p>
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<a href="https://theconversation.com/see-when-australias-biggest-banks-stopped-paying-proper-interest-on-your-savings-and-what-you-can-do-about-it-200265">See when Australia's biggest banks stopped paying proper interest on your savings – and what you can do about it</a>
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<p>Profit margins are also higher here than in more competitive markets overseas. </p>
<p>This is true in banking, where the big four have taken over St George, BankWest, and the Bank of Melbourne – and are about to take over <a href="https://www.accc.gov.au/media-release/australian-competition-tribunal-authorises-anz%E2%80%99s-proposed-acquisition-of-suncorp-bank">Suncorp</a>. </p>
<p>It’s also true in supermarkets, where the big two, Woolworths and Coles, have taken over or seen off Franklins, Bi-Lo and Safeway.</p>
<h2>Bigger profit margins than overseas</h2>
<p>Coles supermarkets reported earnings <a href="https://www.investopedia.com/terms/e/ebitda.asp#:%7E:text=EBITDA%2C%20or%20earnings%20before%20interest,generated%20by%20the%20company's%20operations.">before adjustments</a> of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02777616-3A637432">A$1.73 billion</a> on sales of $19.778 billion in the half year to December – a profit margin of 8.7%.</p>
<p>Last week, Woolworths supermarkets reported earnings of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02774826-2A1506104">$2.45 billion</a> on sales of $25.648 billion – a margin of 9.6%.</p>
<p>By way of comparison, the dominant UK supermarket group, Sainsbury’s, has a profit margin of <a href="https://stockanalysis.com/quote/lon/SBRY/statistics/">6.13%</a>.</p>
<p>In banking, the Commonwealth Bank has just reported a return on equity (profit as a proportion of shareholders’ funds) of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02772167-2A1504649">13.8%</a>. National Australia Bank reported <a href="https://www.nab.com.au/content/dam/nab/documents/reports/corporate/2023-full-year-results.pdf">12.9%</a>. </p>
<p>While on a par with the big banks overseas, those recent returns are a good deal higher than CommBank’s <a href="https://www.commbank.com.au/content/dam/commbank-assets/about-us/2021-08/2021-annual-report_spreads.pdf">11.5%</a> and NAB’s <a href="https://www.nab.com.au/content/dam/nab/documents/reports/corporate/2021-full-year-results-management-discussion-and-analysis.pdf">10.7%</a> reported two years ago.</p>
<h2>Little hope for groceries</h2>
<p>For supermarkets, there’s not a lot the government can do, apart from launching an <a href="https://www.accc.gov.au/inquiries-and-consultations/supermarkets-inquiry-2024-25">inquiry</a>, and perhaps giving Australian authorities the power to <a href="https://www.afr.com/policy/economy/break-up-firms-that-abuse-market-power-says-former-competition-tsar-20230709-p5dmtq">break up</a> firms that abuse their market power.</p>
<p>But Prime Minister Anthony Albanese has said he isn’t keen on giving Australian authorities the sort of powers available to authorities in the United States and the United Kingdom, saying (incongruously) Australia is “<a href="https://www.pm.gov.au/media/radio-interview-abc-radio-brisbane-mornings">not the old Soviet Union</a>”.</p>
<p>And doing anything short of that would be unlikely to have much effect. Australia’s two supermarket giants have invested a fortune in high-tech <a href="https://theconversation.com/coles-and-woolworths-are-moving-to-robot-warehouses-and-on-demand-labour-as-home-deliveries-soar-166556">warehouses and distribution systems</a>, which new rivals would be hard-pressed to match.</p>
<h2>Hope for more competitive banking</h2>
<p>But for banks it’s altogether different. Richard Denniss of the Australia Institute has come up with the idea, and it’s a beauty. </p>
<p>It’s for the government to provide a low-cost banking service – expanding on services it already offers.</p>
<p>The costs would be so low, other banks might decide to add features and resell them in the same way as resellers sell <a href="https://www.whistleout.com.au/MobilePhones/Guides/Telstra-network-coverage-vs-ALDI-Woolworths-Belong-Boost">mobile phone</a> and <a href="https://www.nbnco.com.au/residential/service-providers">NBN</a> services.</p>
<p>The primary function of any bank is to provide a numbered account into which Australians can deposit and withdraw funds.</p>
<p>The Australian Tax Office does this already, at an incredibly low cost. </p>
<p>The tax office gives every working Australian a <a href="https://www.ato.gov.au/individuals-and-families/tax-file-number">tax file number</a>. Employers deposit money into these accounts, and – should the tax office owe a refund – taxpayers withdraw them. </p>
<p>Some taxpayers ensure their tax is <a href="https://www.ato.gov.au/businesses-and-organisations/international-tax-for-business/in-detail/income/refund-of-over-withheld-withholding-how-to-apply">overpaid</a>, so they withdraw later.</p>
<p>Denniss describes it as a bank account with the world’s clumsiest interface.</p>
<h2>The government could offer bank loans</h2>
<p>It wouldn’t be much of a stretch from improving that interface to offering government loans. </p>
<p>In fact, government loans are already provided in some circumstances: such as to retirees with home equity through the <a href="https://www.dss.gov.au/our-responsibilities/seniors/benefits-payments/home-equity-access-scheme">home equity access scheme</a>, and to Centrelink recipients through <a href="https://www.servicesaustralia.gov.au/centrelink-online-account-help-apply-for-advance-payment">advance payments</a>.</p>
<p>It woudn’t be much more of stretch to provide loans more broadly, at an incredibly low administrative cost. The government already lends against the <a href="https://www.servicesaustralia.gov.au/who-can-get-loan-under-home-equity-access-scheme">value of homes</a>.</p>
<p>Back in the days when the federal government owned the <a href="https://www.commbank.com.au/about-us/our-company/history.html">Commonwealth Bank</a>, it had to cover the high costs of running bricks and mortar branches.</p>
<p>Freed from those costs, the government could now offer a low-cost, technology-enabled basic banking service that would tempt us away from the big four banks – unless they offered better value.</p>
<p>Of course it would cost money, although a lot of it has already been spent setting up the system of tax file numbers and accounts. And of course the banks would hate the idea. That would be the point. </p>
<p>But doing what we can to stop Australians being overcharged is important, not only for wage earners but also for businesses.</p>
<p>The <a href="https://treasury.gov.au/review/competition-review-2023">competition inquiry</a> the government has launched is a good start. It shouldn’t be frightened about where it might lead.</p><img src="https://counter.theconversation.com/content/223821/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin is Economics Editor of The Conversation. </span></em></p>We really are being charged more than we used to be. If the government is concerned about price gouging, it could try this bold idea: offering its own low-cost bank loans.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2085752023-07-04T02:11:08Z2023-07-04T02:11:08ZBanks put family violence perpetrators on notice. Stop using accounts to commit abuse or risk being ‘debanked’<figure><img src="https://images.theconversation.com/files/535239/original/file-20230703-194046-95aav6.jpg?ixlib=rb-1.1.0&rect=389%2C117%2C5540%2C3666&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Perpetrators of family violence will often use money to hurt and control their victims.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/search/financial-abuse?image_type=photo">Shutterstock</a></span></figcaption></figure><p>Ella never knew when her credit card was going to be declined.</p>
<p>It happened when she was shopping for groceries with her kids, or refuelling the car. That’s when she would discover her partner had cancelled the card or lowered the limit so she couldn’t buy essentials. Again. </p>
<p>Ella* (not her real name) is one of <a href="https://www.abs.gov.au/statistics/people/crime-and-justice/personal-safety-australia/latest-release#cohabiting-partner-violence-emotional-abuse-and-economic-abuse">about 1.6 million Australian women and 745,000 men</a> who have experienced economic or financial abuse. </p>
<p>Perpetrators of such abuse use money to control their victims, with devastating impact including stopping or limiting access to money, creating insurmountable debt and damaging a credit history.</p>
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<a href="https://theconversation.com/higher-unemployment-and-less-income-how-domestic-violence-costs-women-financially-204688">Higher unemployment and less income: how domestic violence costs women financially</a>
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<p>The <a href="https://www.commbank.com.au/content/dam/caas/newsroom/docs/Cost%20of%20financial%20abuse%20in%20Australia.pdf">direct costs</a> to victim-survivors of financial abuse have been estimated at A$5.7 billion a year, with impact on the economy estimated at A$5.2 billion a year.</p>
<h2>The highly disruptive tactics used by abusers</h2>
<p>Perpetrators use a range of <a href="https://www.commbank.com.au/content/dam/commbank-assets/support/2020-11/unsw-report-1-financial-abuse-ipv.pdf">tactics</a>, some of which are inadvertently enabled by bank products and services. For example:</p>
<p>• credit cards are opened in the name of victim-survivors without their knowledge, potentially damaging credit scores </p>
<p>• all cash is withdrawn from joint accounts or redraw facilities without the consent of the other account holder</p>
<p>• legally binding property settlement orders to refinance home loans are ignored, forcing one party to seek help with repayments while trying to disentangle from their ex-partner</p>
<p>• payment descriptions are used to send threatening, abusive messages.</p>
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<a href="https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&rect=0%2C144%2C5691%2C3719&q=45&auto=format&w=1000&fit=clip"><img alt="Woman looks at the ATM in despair as she realises her bank account is empty." src="https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&rect=0%2C144%2C5691%2C3719&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535233/original/file-20230703-252566-aa70gw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Money may be emptied from joint accounts or access may be blocked.</span>
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<p>Banks typically respond to these issues case-by-case, tailoring solutions for each customer. However, it may be possible to eliminate or reduce the need for these interventions with improved product design to prevent and disrupt abusers.</p>
<h2>Taking action against perpetrators</h2>
<p>My first <a href="https://cwes.org.au/wp-content/uploads/2022/11/CWES_DesigntoDisrupt_1_Banking.pdf">Designed to Disrupt</a> discussion paper for the <a href="https://cwes.org.au/">Centre for Women’s Economic Safety</a> proposes a new “financial safety by design” framework that tailors the <a href="https://www.esafety.gov.au/industry/safety-by-design">eSafety Commissioner’s work with the technology sector</a> and provides greater protection for victim-survivors.</p>
<p>It outlines steps banks can take to prevent their products being used as a weapon in domestic and family violence.</p>
<p>Recommended measures include setting up every joint account with separate passwords, logins, and portals for each person so it’s simpler and safer to separate if the relationship ends or is abusive.</p>
<p>Two of Australia’s big four banks, the National Australia Bank and the Commonwealth Bank have already agreed to adopt the primary recommendation – to include financial abuse in product terms and conditions as a reason for suspension or closure of accounts.</p>
<p>It’s likely other banks will follow suit, with <a href="https://www.westpac.com.au/about-westpac/media/media-releases/2022/22-november/">Westpac</a> signalling last November it would consider ensuring its terms and conditions reflect its no tolerance approach to financial abuse.</p>
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Read more:
<a href="https://theconversation.com/women-who-suffer-domestic-violence-fare-much-worse-financially-after-separating-from-their-partner-new-data-190047">Women who suffer domestic violence fare much worse financially after separating from their partner: new data</a>
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<p><a href="https://media-cdn.ourwatch.org.au/wp-content/uploads/sites/2/2021/11/18101814/Change-the-story-Our-Watch-AA.pdf">Evidence</a> shows that challenging the acceptance of violence against women is essential to respond to specific gendered drivers of violence.</p>
<p>In banking, this means spelling out the bank’s rules and its expectations of customer behaviour in its terms and conditions. These rules are the foundation of the contractual relationship with the customer and are relied on where there is a dispute.</p>
<h2>Banks taking the lead</h2>
<p><a href="https://news.nab.com.au/news/nab-takes-on-financial-abuse/">National Australia Bank</a> and Commonwealth Bank will change their terms and conditions to make it clear that financial abuse is unacceptable – just like financial crime or threatening call centre staff.</p>
<p>They will be the first Australian banks to signal to millions of bank customers they have a choice: abuse other customers and potentially lose access to their bank account, or behave with respect.</p>
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<span class="caption">Persistent abusers may be denied banking services.</span>
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<p>This will make it harder for people to misuse financial products as a means of coercive control. </p>
<p>Implementation will be complex and the banks will need to proceed with caution. Financial abuse is hard to detect and there may be risks to the abused partner if perpetrators blame them for the bank’s action.</p>
<h2>Consequences for abusers who fail to stop</h2>
<p>An abuser may continue their behaviour at another bank. In this instance, there is the option of “de-banking” the customer which is not only a major inconvenience but also denies them access to an essential service.</p>
<p>That’s why it’s important the whole industry moves on this. It is instructive to examine the collective approach the banks have already taken to disrupt technology-facilitated abuse through payment descriptions.</p>
<p>Notably, my research found two banks reported more than 90% of customers discontinued abuse following a warning letter. </p>
<p>Implementation of the new terms and conditions should be guided by the experience of victim-survivors. It could also be informed by the Council of Financial Regulators’ <a href="https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2022/potential-policy-responses-to-de-banking-in-australia/pdf/potential-policy-responses-to-de-banking-in-australia.pdf">de-banking policy recommendations</a> on transparency and fairness measures.</p>
<p>These measures include providing documented reasons to the customer with 30 days’ notice before closing services and giving them access to internal dispute resolution.</p>
<h2>Getting the public on board</h2>
<p>There also needs to be a public conversation about what this means. Airlines make it clear jokes about terrorism are not okay, and patrons are ejected from sporting events for violence.</p>
<p>If every bank in Australia makes it clear there is a minimum expectation of respectful behaviour to be a customer, it would be a game changer. </p>
<p>The widespread adoption of financial abuse terms and conditions and broad public communication will send a strong message to everyone with a bank account that financial abuse is unacceptable and has consequences.</p><img src="https://counter.theconversation.com/content/208575/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Catherine Fitzpatrick consults to Westpac and owns shares in Westpac and Commonwealth Bank of Australia. She received funding from the Centre for Women's Economic Safety to write the Designed to Disrupt report and continues to be affiliated. She is a former bank executive and established and led specialist customer vulnerability teams at CBA and Westpac. </span></em></p>Two of Australia’s major banks have announced they will take action against financial abusers, including closing their accounts.Catherine Fitzpatrick, Adjunct Associate Professor, School of Social Sciences, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1378892020-05-06T19:50:21Z2020-05-06T19:50:21ZBank dividends are bare. Here’s why some shareholders hate it more than they should<p>In bad news for retirees and others who depend on dividend cheques (and dividend imputation rebate cheques from the Tax Office) bank dividends have largely evaporated. But it’s not as bad as many commentators suggest, and actually good for some investors.</p>
<p><a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/2020_Interim_Media_Release.pdf">Westpac</a> won’t be paying a dividend this half year. Nor will the <a href="https://yourir.info/resources/4d216b570d08af30/announcements/anz.asx/3A540286/ANZ_News_Release_ANZ_NZ_2020_half-year_result.pdf">ANZ</a>, nor the <a href="https://wcsecure.weblink.com.au/pdf/BOQ/02224752.pdf">Bank of Queensland</a>.</p>
<p>The <a href="https://www.nab.com.au/about-us/shareholder-centre/dividend-information">National Australia Bank</a> will pay one, but only a third the usual size. The Commonwealth Bank’s different reporting dates mean it won’t have to make a decision <a href="https://www.commbank.com.au/about-us/investors/dividend-information.html">until August</a>.</p>
<p>The Financial Review believes the moves have taken <a href="https://www.afr.com/companies/financial-services/westpac-shareholders-have-long-wait-ahead-on-dividends-20200504-p54plj">A$9.8 billion</a> in expected dividends and <a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">franking credits</a> from bank shareholders to date. </p>
<p>The flip-side missed by many commentators and shareholders is that bank shares are worth more (maybe around $9.8 billion more) than if they had paid those dividends.</p>
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<span class="attribution"><a class="source" href="https://www.apra.gov.au/sites/default/files/2020-04/Capital%20management.pdf">APRA letter to financial institutions, April 7, 2020</a></span>
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<p>As it happens, the decisions follow pressure from the Prudential Regulation Authority which last month sent banks an <a href="https://www.apra.gov.au/capital-management">unprecedented letter</a> asking them to “seriously consider deferring decisions on the appropriate level of dividends”.</p>
<p>It isn’t what bank shareholders have come to expect. </p>
<p>The Commonwealth Bank’s <a href="https://www.commbank.com.au/about-us/investors/dividend-information.html">dividend policy</a> says it will aim to pay cash dividends at “strong and sustainable levels”, maximising dividend imputation cheques from the government by paying <a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">fully franked</a> dividends.</p>
<p>The dividend reductions come after sharp collapses in share prices brought about by hits to current and expected future earnings and increased economic uncertainty.</p>
<p>But, as hard as it is to look beyond dividends, imputation cheques and the price of shares, what’s most important for the owners of shares are the earnings prospects for the banks long term. And here, as hard as it might be for some shareholders to accept, the suspension of dividends is a sensible strategy for the banks.</p>
<h2>Cruel to be kind makes sense for banks</h2>
<p>In making decisions about dividends in the wake of bad news, each bank had two options. </p>
<p>One was to keep paying dividends at previous levels. </p>
<p>That would have pushed the share price down further, as evidenced by the typical drop in a company’s share price after dividends have been paid. </p>
<p>With the funds paid out as dividends, and no longer part of the bank’s shareholders funds, each share becomes correspondingly worth less. </p>
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Read more:
<a href="https://theconversation.com/the-last-thing-companies-should-be-doing-right-now-is-paying-dividends-135928">The last thing companies should be doing right now is paying dividends</a>
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<p>It also puts the bank in a weaker position to weather unexpected loan losses if the COVID-19 storm turns out to be even worse than expected. </p>
<p>The other option was to scrap (or reduce) its dividend and avoid the ex-dividend date drop in its share price. It bolsters its capital strength and gives shareholders higher expected capital gains (or lower capital losses).</p>
<p>Broadly, the loss of dividends should be offset to some degree by a higher share price and higher capital gains. </p>
<p>But try telling shareholders that the dividends they have lost can be replaced by selling shares.</p>
<h2>Tax makes retirees hate it</h2>
<p>That they care is in part psychological. Shareholders view a bird (dividend) in the hand as better than one (a capital gain) in the bush. </p>
<p>Selling shares is seen as “dipping into one’s capital”, even though it has the same effect on the shareholder’s capital (the value of shares held) as taking a dividend.</p>
<p>Another reason shareholders care more than you might think is tax. </p>
<p>Typically (based on historical evidence) a franked dividend of $1 leads to a share price fall of around $1. </p>
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Read more:
<a href="https://theconversation.com/deeming-rates-explained-what-is-deeming-how-does-it-cut-pensions-and-why-do-we-have-it-120089">Deeming rates explained. What is deeming, how does it cut pensions, and why do we have it?</a>
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<p>But for an investor on a zero tax rate (as many retirees are) that $1 dividend is actually worth around $1.43. </p>
<p>This is because the Tax Office rebates that investor <a href="https://www.marketindex.com.au/franking-credits">43 cents</a> of tax previously paid by the bank, a so-called dividend imputation payment. </p>
<p>Selling $1.43 of shares to compensate for the lost dividend cash flow leaves them worse off.</p>
<p>Super funds on a low 15% tax rate are also likely to prefer payment of franked dividends since they can use the imputation credits to reduce tax on other investment income.</p>
<h2>Tax makes other shareholders like it</h2>
<p>High tax rate investors and foreign shareholders think quite differently. </p>
<p>For high tax rate investors, Australia’s practice of taxing only <a href="https://www.realestate.com.au/advice/what-is-capital-gains-tax/">half</a> of each capital gain can make the higher capital gains associated with higher share prices more attractive than receiving dividends on which they have to pay extra tax.</p>
<p>Foreign shareholders also generally prefer capital gains to franked dividends, since they can’t use Australia’s imputation credits.</p>
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Read more:
<a href="https://theconversation.com/heres-a-radical-reform-that-could-pay-every-retiree-the-full-pension-131289">Here's a radical reform that could pay every retiree the full pension</a>
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<p>Under any tax system where dividends and capital gains are taxed differently, deferring dividends hurts some investors and benefits others. Australia’s imputation tax system magnifies that effect, with low tax rate investors being losers.</p>
<p>As it happens, these features of the tax system took centre stage in last year’s election, in which Labor proposals to change both the rules regarding dividend imputation and capital gains were <a href="https://theconversation.com/going-up-monday-showed-what-the-market-thinks-of-morrison-117396">rejected</a> by voters.</p>
<h2>Longer term, investors might thank banks</h2>
<p>The root cause of the hit to dividends is uncertainty about the future. </p>
<p>If economic conditions turn out worse than expected, banks will find themselves hesitant to make loans unless they have sufficient capital to absorb unexpected losses.</p>
<p>To the extent that they use that capital to help restore the health of the economy, all investors (including those reliant on future dividends) will be better off.</p><img src="https://counter.theconversation.com/content/137889/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Westpac and the ANZ have suspended dividends payments. The National Australia Bank has slashed them. The peculiarities of our tax system explain why retirees hate this more than they should.Kevin Davis, Professor of Finance, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1111822019-02-07T19:06:40Z2019-02-07T19:06:40ZDefence mechanisms. Why NAB chairman Ken Henry lost his job<figure><img src="https://images.theconversation.com/files/257724/original/file-20190207-174851-1mgxv05.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ken Henry on ABC 7.30 Thursday night. "We have not been able to satisfy customer expectations, nor community expectations. As I said, for that, we are deeply sorry."</span> <span class="attribution"><span class="source">ABC</span></span></figcaption></figure><p>Defensive, some say arrogant, behaviour just cost Ken Henry his job.</p>
<p>Between 2001 and 2011 Henry was the highly regarded head of the federal treasury. He steered Australia through the global financial crisis, led the Henry Tax Review, gave birth to the goods and services tax and the mining tax, and laid the groundwork for the emissions trading scheme.</p>
<p>In the private sector he rose to be chairman of the National Australia Bank, where he was also well-regarded until a disastrous appearance at the banking royal commission in which he offered the counsel assisting <a href="https://financialservices.royalcommission.gov.au/public-hearings/Documents/transcripts-2018/transcript-27-November-2018.pdf">not a hint of contrition</a>.</p>
<blockquote>
<p>Do you accept that the board should have stepped in earlier?</p>
<p>I wish we had, let me put it that way. I wish we had – I still don’t know.</p>
<p>I would like you to answer my question, Dr Henry. Do you accept that the board should have stepped in earlier?</p>
<p>I have answered the question how I can answer the question.</p>
<p>I’m sorry. Is it a yes or a no, Dr Henry?</p>
<p>I’ve answered the question the way I choose to answer the question.</p>
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<p>Late on Thursday Henry and his chief executive Andrew Thorburn <a href="https://www.asx.com.au/asxpdf/20190207/pdf/442g3sdtbrynr6.pdf">stepped down</a>, Henry telling <a href="https://www.abc.net.au/7.30/nab-chairman-ken-henry-discusses-his-resignation/10791830">Leigh Sales on ABC 7.30</a> he did not perform well at the commission and had reflected on the criticism.</p>
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<p>The more I thought about it, and I can’t tell you how many times I’ve relived that appearance, I understand the criticism. I did not perform well. I really should have performed quite differently. I should have been much more open.</p>
<p>At the time, were you feeling defensive and resentful of being there?</p>
<p>I wasn’t feeling resentful. No. But I can understand why I came across that way. I was feeling defensive and I should not have been.</p>
</blockquote>
<p>Defence mechanisms arise when the social order someone has become accustomed to is challenged. They try to restore stability through projection, denial, games, blame, or rationalisation. </p>
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<p>In Henry’s case, his first defence mechanism was to deny that his board had engaged in serious misconduct.</p>
<p>One of his opposite numbers at the Commonwealth Bank, chief executive Matt Comyn, tried to suggest that he had had little choice but to continue to sell junk insurance policies on which most people couldn’t claim.</p>
<p>When he was in a more junior position as head of the retail division he complained to the then chief executive Ian Narev, and was told to “<a href="https://www.smh.com.au/business/banking-and-finance/i-was-insufficiently-persuasive-comyn-s-attempt-to-stop-insurance-sales-rebuffed-by-then-cba-chief-20181120-p50h3c.html">temper your sense of justice</a>”.</p>
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<p>Three months after that discussion, the bank released a report <a href="https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/2015-asx/Sustainability_report_2015.pdf">espousing its commitment to financial literacy</a> and was named “<a href="https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/2015-asx/Sustainability_report_2015.pdf">industry mover</a>” on the Dow Jones Sustainability World Index.</p>
<p>Directors may not have sought to directly hurt vulnerable people, but the indirect consequences of their behaviour can’t be ignored: farmers have lost their land, dead people have been charged fees for no service, and First Nations people have been <a href="https://theconversation.com/banking-royal-commission-how-hayne-failed-remote-australia-111100">targeted for financial products they could not use</a>. </p>
<p>Despite multiple previous inquiries the industry’s behaviour didn’t change because for the most part <a href="https://www.apra.gov.au/sites/default/files/CBA-Prudential-Inquiry_Final-Report_30042018.pdf">its directors’ assumptions didn’t change</a>. Cognitive and emotional barriers to unlearning protected the assumption that it was OK to pursue profit at the expense of customers.</p>
<p>Strong financial success and weak law enforcement made it easier.</p>
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<p>Since the global financial crisis there has been an increase in reports and brochures about corporate social responsibility as well as advertising espousing values. Some have labelled them <a href="https://www.acsi.org.au/sustainability-reporting.html">window-dressing and organised hypocrisy</a>, but it’s just as easy to see them as projection, as the directors and executives fooling themselves. </p>
<p>The finance industry is known to have weaker <a href="https://hbr.org/2015/03/why-our-trust-in-banks-hasnt-been-restored">honesty norms than other industries</a>. Commissioner Hayne was justified in <a href="https://financialservices.royalcommission.gov.au/Pages/reports.aspx">concluding in his final report</a>:</p>
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<p>Overall, my fear, that there may be a wide gap between the public face NAB seeks to show and what it does in practice, remains.</p>
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<p>The gap between what people say and do isn’t new. Ancient Greeks said deeds are fruit and words were only leaves. The Chinese proverb says talking does not cook rice. </p>
<p>In the days after the release of the final report, Henry and his chief executive said they were taking the recommendations “very seriously” and were the right people to drive cultural change.</p>
<p>Henry was right. Directors are the ones to drive change. It is what they are there for. They are the sense-givers, their staff and the public are the sense-makers. </p>
<p>When a director says one thing in public but another within the bank, it fosters cynicism and mistrust among their staff.</p>
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Read more:
<a href="https://theconversation.com/six-questions-our-banks-need-to-answer-to-regain-trust-110715">Six questions our banks need to answer to regain trust</a>
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<p>To create sustainable change, stated values have to become the practised ones.</p>
<p>When <a href="https://www.spencerstuart.com/%7E/media/pdf%20files/research%20and%20insight%20pdfs/the-leaders-guide-to-corporate-culture.pdf">done well</a> it can “unleash tremendous amounts of energy towards a shared purpose and foster an organisation’s capacity to thrive”.</p>
<p>Directors wanting to embed a culture based on the commission’s recommendations would do well to observe the lessons from <a href="https://goo.gl/uZFAVQ">organisation culture theory</a> on primary embedding mechanisms:</p>
<ul>
<li><p>Pay attention to, measure, and control culture on a regular basis – this role cannot be outsourced to HR or PR departments and measurement <a href="https://www.apra.gov.au/sites/default/files/CBA-Prudential-Inquiry_Final-Report_30042018.pdf">cannot come from one-dimensional statistics finding customers are happy</a> </p></li>
<li><p>Be aware of how you react to critical incidents and organisational crises – jumping to defensive mechanisms where undiscussed things remain undiscussed can no longer be the modus operandi </p></li>
<li><p>Allocate enough resources to embed the new culture</p></li>
<li><p>Deliberately role model desired behaviour for the whole organisation that meets and goes above society’s expectation</p></li>
<li><p>Allocate rewards and status for the desired behaviour</p></li>
<li><p>Recruit, select, promote, and excommunicate in accordance with your organisation’s value.</p></li>
</ul>
<p>Organisational theorists say the best time to investigate culture is <a href="https://goo.gl/uZFAVQ">when there is a problem</a> </p>
<p>Replacing defensive mechanisms with mechanisms for changing a culture isn’t easy. Giving evidence to the Commission Ken Henry said it could take as much as ten years, although on 7.30 on Thursday he said he expected the NAB to do it more quickly. </p>
<p>The steps to take appear common sense - in hindsight. One of the first is to acknowledge the defensive mechanisms that exist. Then you can start untangling them at the top and then throughout the organisation.</p>
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Read more:
<a href="https://theconversation.com/nabs-andrew-thorburn-and-ken-henry-quit-after-royal-commission-lashing-111363">NAB's Andrew Thorburn and Ken Henry quit after royal commission lashing</a>
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<img src="https://counter.theconversation.com/content/111182/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Clare JM Burns does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We get defensive when the social order we have become accustomed to is challenged. We attempt to protect ourselves through projection, denial, games, blame, or rationalisation.Clare JM Burns, Sessional academic in management, PhD student, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/934892018-03-20T19:04:58Z2018-03-20T19:04:58ZConsumers need critical thinking to fend off banks’ bad behaviour<p>The <a href="http://www.abc.net.au/news/2018-03-14/nab-executive-admits-bank-breaches-responsible-lending-laws/9547220">irresponsible</a> (if not predatory) lending and the selling of “<a href="https://www.theaustralian.com.au/business/banking-royal-commission/cba-sold-junk-credit-insurance/news-story/cc2e375f95693a644985687f995c9998">junk</a>” financial products highlighted by the Financial Services Royal Commission should raise concerns for regulators, educators and parents interested in financial literacy.</p>
<p>Research shows a <a href="https://research.acer.edu.au/ozpisa/27/">strong correlation</a> between financial literacy and literacy and numeracy skills. Literacy and numeracy are critical for, among other things, making sense of product disclosure statements and understanding the impact of loan terms and interest rates on the total amount to be repaid. </p>
<p>But teaching financial literacy requires going beyond these skills, by cultivating a healthy scepticism of financial institutions and the capabilities and confidence to make informed financial decisions.</p>
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Read more:
<a href="https://theconversation.com/financial-literacy-is-a-public-policy-problem-84695">Financial literacy is a public policy problem</a>
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<p>There is a strong relationship between a low socioeconomic background and low financial literacy in both <a href="https://research.acer.edu.au/ozpisa/27/">adolescents</a> and <a href="https://www.anz.com/resources/3/1/31cbc1fd-9491-4a22-91dc-4c803e4c34ab/adult-financial-literacy-survey-full-results.pdf">adults</a>.</p>
<p>It’s not just disadvantaged and vulnerable groups that struggle with financial decision-making. People who are highly educated in finance <a href="https://link.springer.com/article/10.1057/fsm.2008.24">also make poor decisions</a> – for instance, by focusing too much on growing their assets and ignoring risks.</p>
<p>But <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/cb.1621">studies show</a> that when regulation is effective and the financial system can be trusted, even consumers with limited financial knowledge and information-processing capabilities have the potential to deal with complex financial decisions. </p>
<p>For example, when considering mortgage protection insurance, applicants stand to benefit from knowing the actual risk of events like serious illness or injury that can affect their ability to meet monthly loan repayments.</p>
<h2>Building financial capability</h2>
<p>One way to develop better financial literacy is through simulating real-world risks, rewards and decisions in safe and supportive environments. For instance, families can play games like Monopoly and The Game of Life. </p>
<p>Secondary school students also have access to more sophisticated online simulations, such as the <a href="http://financialbasics.org.au/essi-money/about-register.aspx">ESSI Money Game</a> and the <a href="https://www.asx.com.au/education/sharemarket-game.htm">ASX Sharemarket Game</a>. </p>
<p>Hypothetical scenarios like these provide opportunities for role play, where students can practise drawing on evidence and using it to think and reason about situations. </p>
<p>A <a href="https://www.vcta.asn.au/documents/item/3244">recent survey</a> of teachers of Year 7-10 commerce students revealed that more could also be done to teach students how to compare and choose between banks and financial products and services, what to do in the case of a financial scam, and how to escalate an unresolved complaint.</p>
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Read more:
<a href="https://theconversation.com/should-banks-play-a-role-in-teaching-kids-about-how-to-manage-money-effectively-67775">Should banks play a role in teaching kids about how to manage money effectively?</a>
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<p>But we also need to take a look at the <a href="https://theconversation.com/should-banks-play-a-role-in-teaching-kids-about-how-to-manage-money-effectively-67775">role banks play in financial education</a>. Programs like the Commonwealth Bank’s <a href="https://www.commbank.com.au/personal/kids/school-banking/dollarmites.html">Dollarmites Club</a> and Westpac’s <a href="https://mathspace.co/westpac/plus/">Solve to Save</a> teach children about money on the banks’ terms.</p>
<p>A key call to action in these programs is often to open a bank account and activate a savings plan. In the Solve to Save program, parents pay a $10 weekly subscription, which is “<a href="https://mathspace.co/westpac/plus/">automatically refunded</a>” to their child’s nominated Westpac account every week they complete three mathematics exercises.</p>
<p>Late last year, in response to <a href="https://www.choice.com.au/money/banking/savings-options/articles/cba-facing-public-scrutiny-cleans-up-dollarmite-commissions-061017">criticism by the consumer advocacy group Choice</a>, the Commonwealth Bank stopped kickback payments to schools related to its longstanding Dollarmites scheme.</p>
<p>While the banks may be proud of their investment in these education programs, they serve to position the banks as experts in money matters while cultivating trust and brand loyalty.</p>
<h2>What does it really mean to be smart with money?</h2>
<p>Misguided trust has exposed vulnerable individuals to the moral hazard of the banks – and underscores the importance of improved financial regulation and education moving forward.</p>
<p>Given that borrowing decisions are complex, multidimensional and often emotional, it’s important to consider any lender’s motives, or “What’s in it for them?” Banks are profit-driven. This means an important question to ask oneself is: “Where can I get information and support that is independent, comprehensive and easy to understand?”</p>
<p>In the current climate, teaching <a href="https://theconversation.com/cutting-through-political-spin-requires-a-new-approach-to-financial-literacy-59240">capabilities</a> for a healthy scepticism and personal agency is the way forward. </p>
<p>We also need to change the public perception of what it means to be financially literate. The conventional focus on individual responsibility and wealth accumulation is <a href="https://theconversation.com/there-are-serious-problems-with-the-concept-of-financial-literacy-84836">flawed</a>. </p>
<p>Arguably, this focus has contributed to the need for a Financial Services Royal Commission. Whether you are a bank, a mortgage broker or a consumer, the impact of your decisions on others must be carefully considered.</p>
<p>While education can contribute to preparing all Australians for informed financial participation, the task is challenging.</p><img src="https://counter.theconversation.com/content/93489/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carly Sawatzki is affiliated with the Mathematics Education Research Group of Australasia. </span></em></p><p class="fine-print"><em><span>Levon Ellen Blue does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Financial literacy is more than numeracy, it requires a healthy scepticism of financial institutions and confidence in making financial decisions.Carly Sawatzki, Assistant Professor, University of CanberraLevon Ellen Blue, Lecturer, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/883872017-11-30T05:17:27Z2017-11-30T05:17:27ZWhy the big four asked for a parliamentary inquiry into banking<p>The major Australian banks are following familiar public relations tactics in <a href="http://www.asx.com.au/asxpdf/20171130/pdf/43pr4y07l7v0v6.pdf">requesting</a> a parliamentary commission of inquiry into banking and financial services. </p>
<p>When the public mood is against an industry, it will try to win the public over, while getting the politicians to ignore the public mood. If that fails, the industry gradually concedes ground until attention goes elsewhere.</p>
<p>For this reason, the banks went from being steadfastly against a commission, to offering the option of self-regulation, to proposing a new “<a href="http://www.smh.com.au/federal-politics/political-news/are-we-getting-a-royal-commission-a-commission-of-inquiry-or-a-banking-tribunal-20171127-gztf1u.html">banking tribunal</a>”, to eventually conceding, after the battle had <a href="http://www.abc.net.au/news/2017-11-30/analysis-malcolm-turnbull-hates-the-inquiry-but-it-had-to-happen/9210246">already been lost</a>, to a parliamentary inquiry.</p>
<p>The big problem for the banks, and a big part of the reason that their previous lobbying failed, is that their popularity with the Australian public <a href="https://www.theguardian.com/australia-news/2017/nov/27/most-australians-want-banking-royal-commission-guardian-essential-poll">is very low</a>. This allowed, or pressured, politicians to call for the commission, and presents significant problems for the banks going forward, especially if they wish to avoid tougher regulation. </p>
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Read more:
<a href="https://theconversation.com/royal-commissions-how-do-they-work-10668">Royal commissions: how do they work?</a>
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<p>The banks capitulated only once it became “<a href="http://www.theage.com.au/federal-politics/political-news/banking-inquiry-all-but-inevitable-after-another-nationals-mp-vows-to-cross-floor-20171127-gztm8l.html">all but inevitable</a>” that an inquiry of some sort would be held. </p>
<p>Due to the recent <a href="https://theconversation.com/the-dual-citizenship-saga-shows-our-constitution-must-be-changed-and-now-87330">citizenship saga</a>, it was <a href="https://theconversation.com/turnbull-backed-against-the-wall-by-rebel-nationals-on-bank-inquiry-88183">looking likely</a> that a coalition of crossbench, Labor, Greens and some Nationals MPs would pass a bill for a commission of inquiry into the banks and other financial institutions.</p>
<p>Labor had <a href="https://theconversation.com/labor-pledges-royal-commission-into-bank-behaviour-57490">already promised</a> to set up a royal commission into the banking and financial services industry if it won the next election. </p>
<h2>Concede ground only when it’s already lost</h2>
<p>A royal commission will almost certainly bring many <a href="https://theconversation.com/banking-royal-commission-will-expose-the-real-cost-of-bad-behaviour-88380">months of bad press for the banks</a>.</p>
<p>As the industry has repeatedly made clear, it never wanted a royal commission. The banks claimed they had corrected the mistakes of the past and that a commission was “<a href="http://www.asx.com.au/asxpdf/20171130/pdf/43pr4y07l7v0v6.pdf">unwarranted</a>”.</p>
<p>So the banking industry’s public and private lobbying efforts were geared towards convincing politicians to resist calls for the commission, while trying to boost public opinion by <a href="https://www.youtube.com/watch?v=_rtRi2b1Pxg&list=PLE017CFFB36B6CA94">highlighting</a> their corporate social responsibility. </p>
<p>This involved <a href="http://www.abc.net.au/news/2017-08-14/commonwealth-bank-ceo-ian-narev-to-retire-by-july/8803302">sacking executives</a> over this scandal or that, <a href="https://theconversation.com/atm-fees-may-be-gone-but-what-will-replace-them-84594">removing</a> certain ATM fees, and <a href="http://www.abc.net.au/news/2017-08-08/commonwealth-bank-to-cut-executive-bonuses-director-fees/8784030">cutting</a> bonuses and director pay.</p>
<p>The banks have also launched advertising campaigns, <a href="https://www.youtube.com/watch?v=GOMtRAPiJfI">such as one</a> highlighting that many Australians own bank shares through their superannuation. </p>
<p>Concurrently, the banks hoped that <a href="http://www.smh.com.au/federal-politics/political-news/it-would-cost-them-seats-banks-refuse-to-rule-out-mining-taxstyle-campaign-against-royal-commission-20160412-go4ay8.html">threatening</a> to launch a “mining tax”-style ad campaign might scare politicians away from calling for a commission. </p>
<p>These campaigns have become <a href="http://www.abc.net.au/radionational/programs/breakfast/farmers-and-small-business-threaten-mining-tax/8751512">a common threat</a> since the success of the <a href="https://www.youtube.com/watch?v=AounsLUEpc8">2010 mining tax campaign</a> opened corporate Australia’s eyes to the potential effectiveness of advocacy ads.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/banking-royal-commission-will-expose-the-real-cost-of-bad-behaviour-88380">Banking royal commission will expose the real cost of bad behaviour</a>
</strong>
</em>
</p>
<hr>
<p>Tactics similar to those the banks are employing now have been <a href="https://theconversation.com/how-big-tobacco-gifted-campaigns-of-misdirection-and-misinformation-to-the-gun-lobby-45108">used to varying degrees</a> of success in the United States by the tobacco industry and the gun, finance and healthcare lobbies. </p>
<p>In 1998 the American tobacco industry <a href="http://tobaccocontrol.bmj.com/content/8/4/437.full">agreed</a> to make payments of over US$200 billion to dozens of states. But this happened only after decades of public education and campaigning against smoking. </p>
<p>Similarly, the American healthcare lobby successfully fought off several <a href="https://www.ncbi.nlm.nih.gov/pubmed/7989016">attempts</a> to reform healthcare. Obamacare managed to pass in 2010 only after the industry got to <a href="http://www.nytimes.com/2013/09/18/us/politics/reaping-profit-after-assisting-on-health-law.html">substantively write it</a>.</p>
<h2>The public relations game</h2>
<p>Appearing to co-operate and atone is the best way to try to influence the terms of an inquiry. It also helps to mitigate the worst of any bad press to come. This reflects a wider, pragmatic strategy of lobbying and public relations employed by the banks and other industries.</p>
<p>The focus for the banks will now shift towards damage control, along with heavy promotion of the banks “doing the right thing” by Australia. </p>
<p>To that end, expect to see even more banners proclaiming a bank’s sponsorship of the local footy team, and ads promoting the good work done in your local community. </p>
<p>These, along with an insistence that the commission is a witch hunt, that its findings are “old news”, that the banks have already taken steps to deal with the issue, will underpin the industry’s public relations battle while the royal commission takes place.</p><img src="https://counter.theconversation.com/content/88387/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>George Rennie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Appearing to co-operate is the best way to try to influence the terms of an inquiry and manage the bad press.George Rennie, Lecturer in American Politics and Lobbying Strategies, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/873192017-11-15T21:28:09Z2017-11-15T21:28:09ZThe public should be ‘shocked, dismayed and disgusted’ at the major banks<figure><img src="https://images.theconversation.com/files/194740/original/file-20171115-11234-330fag.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">ANZ and NAB have settled with ASIC over manipulation of the Bank Bill Swap Rate.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The Australian public should be dismayed and disgusted that the major banks are still attempting to cover up the <a href="https://theconversation.com/asic-finally-pulls-the-bbsw-trigger-on-anz-55766">extent of their complicity</a> in manipulating the Bank Bill Swap Rate (BBSW), a key interest rate benchmark. </p>
<p>For years, the banks covered up the involvement of their traders in manipulating not only interest rate but also foreign exchange benchmarks, by attempting to outspend the corporate regulator, ASIC, in the courts, using shareholders’ money. </p>
<p>Faced with publication of the evidence they <a href="http://www.smh.com.au/business/banking-and-finance/public-should-be-shocked-judge-clears-nab-anz-100m-raterigging-settlements-20171110-gziufh.html">caved in at the very last minute</a> to settle with ASIC, paying even more shareholders’ funds, for fines and legal costs. </p>
<p>Has any director or senior manager taken personal responsibility, <em>or even apologised</em>, for either the rampant misconduct or the failure to monitor it – No! </p>
<h2>Little contrition</h2>
<p>In a <a href="http://www.media.anz.com/phoenix.zhtml?c=248677&p=irol-news&nyo=0">short media release</a>, ANZ acknowledged, with little contrition, that </p>
<blockquote>
<p>in the course of trading on the BBSW market, a small number of traders attempted to engage in unconscionable conduct on ten dates between September 2010 and February 2012. ANZ also did not have in place adequate policies and systems to monitor trading and communications of its BBSW traders.</p>
</blockquote>
<p>But we should not be fooled by the references to the “small number of traders”, or “ten dates”. </p>
<p>Last year, CBA and NAB <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-455mr-asic-accepts-enforceable-undertakings-from-nab-and-cba-to-address-inadequacies-within-their-wholesale-spot-fx-businesses/">agreed</a> to enforceable undertakings with ASIC in relation to manipulating the foreign exchange benchmark, which was <a href="https://theconversation.com/explainer-how-bankers-fixed-forex-trades-and-why-its-criminal-37525">arguably much more egregious</a> than the BBSW manipulation, as it involved <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-065mr-asic-accepts-enforceable-undertakings-from-westpac-and-anz-to-address-inadequacies-within-their-wholesale-fx-businesses/">sharing of information</a> with other market participants, in particular sensitive information about clients’ trades. </p>
<p>Not one of the directors or senior managers of these banks took personal responsibility for the actions of their staff or their collective failure to monitor such obvious misconduct. </p>
<p>The <a href="http://www.heraldsun.com.au/business/judge-slams-banks-for-trying-to-rig-lending-rate/news-story/8432927f62e431916f2cb8c9e099e6f8">agreement between ASIC, NAB and ANZ stipulates</a> that </p>
<blockquote>
<p>Traders involved in the breaches will have to be retrained before they are allowed back on their banks’ trading floors</p>
</blockquote>
<p>Trading on nonpublic confidential information, which is what “manipulating the bank bill swap rate to their advantage and the disadvantage of others” was, is often punished by <a href="http://www.abc.net.au/news/2017-04-28/businessman-jailed-over-insider-trading/8481724">custodial sentences</a> not some short court-ordered training course. This would just reiterate the rules that the traders <a href="https://afma.com.au/afmawr/_assets/main/LIB90010/Code%20of%20Conduct%20-%20GUIDELINES.pdf">should have been following anyway</a> and which diligent management should have been enforcing.</p>
<p>The failure to monitor staff seems not to have slowed the progress of some senior managers. For example, ANZ CEO <a href="http://shareholder.anz.com/personnel/shayne-elliott-management">Shayne Elliot</a>, was head of ANZ’s Institutional Bank (i.e. trading operations) during most of the period in which the unconscionable conduct took place.</p>
<h2>Why did they pursue the court cases?</h2>
<p>So what were the boards of directors of some of Australia’s largest companies doing while this failure to monitor unconscionable conduct was going on? </p>
<p>While neither superstar chairmen Ken Henry (NAB) nor David Gonski (ANZ) were in place during the original misconduct, they have been in place since 2014 and have had ample opportunity to inquire into the details of the scandal. </p>
<p>Having read the same evidence as Justice Jagot, directors chose to proceed with the case before caving in on the day it was due to be heard in court. Investors should be tearing their hair out at such colossal waste of money on high-priced (and in the end useless) lawyers.</p>
<p>The <a href="https://theconversation.com/dont-believe-the-hype-our-own-libor-scandal-could-be-in-the-wings-12652">LIBOR</a> and <a href="http://www.reuters.com/article/us-eu-commission/eu-commission-fines-banks-2-3-billion-for-benchmark-rigging-idUSBRE9B309Q20131204">foreign exchange</a> scandals cost overseas banks billions of dollars in fines. </p>
<p>Did they really <a href="https://theconversation.com/bbsw-too-dumb-to-understand-57425">believe this time was different</a>, given that other banks had <a href="http://www.abc.net.au/news/2013-03-05/ubs-cheats-target-key-australian-interest-rate/4553564">already pleaded guilty</a> to manipulating BBSW? Even if they were not in place at the time, the non-executive directors of both banks are certainly responsible for continuing this expensive charade.</p>
<p>Such lack of oversight should surely trigger the first investigation when the new Banking Executive Accountability Regime (BEAR) legislation <a href="https://theconversation.com/why-the-new-banking-laws-wont-be-the-slam-dunk-the-government-is-expecting-85530">comes into force</a>, as it covers directors and senior managers.</p>
<h2>Pulling no punches</h2>
<p>Federal Court Justice Jayne Jagot certainly pulled no punches in her statutory approval of the settlement between ASIC and the ANZ and NAB banks, saying that the Australian public should be “<a href="http://www.smh.com.au/business/banking-and-finance/public-should-be-shocked-judge-clears-nab-anz-100m-raterigging-settlements-20171110-gziufh.html">shocked, dismayed and disgusted</a>” by the behaviour of the two banks.</p>
<p>The Australian public is right to be perplexed as to why no one considers themselves personally accountable for such a fiasco. And investors must be afraid that in pursuing the failed litigation so far, without apologising, that further harm is not done by <a href="http://www.abc.net.au/news/2016-08-18/anz-nab-bbsw-us-class-action/7763178">possible class action litigation</a> in the United States. </p>
<p>The Australian taxpayer would be justifiably annoyed to learn that the offences admitted by the banks took place between 2010 and 2012, when the very same banks were given the free handout of a <a href="https://www.guaranteescheme.gov.au/qa/deposits.html">government guarantee</a> following the global financial crisis (GFC) - that really is biting the hand that feeds you.</p>
<p>So, should Australian investors, taxpayers and the public be “shocked, dismayed and disgusted” as the judge suggested? Yes.</p>
<p>But recent history suggests that the largest banks will just try to tough it out before returning to their previous modus operandi. Only a <a href="https://theconversation.com/its-time-for-a-royal-commission-into-banking-regulation-86518">royal commission into banking regulation</a> will break this vicious circle.</p><img src="https://counter.theconversation.com/content/87319/count.gif" alt="The Conversation" width="1" height="1" />
The major banks have tried to downplay their role in manipulating the BBSW interest rate benchmark. But this is not the first instance of bad behaviour.Pat McConnell, Visiting Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/750592017-03-23T23:46:33Z2017-03-23T23:46:33ZASIC’s CommInsure pass shows why badly behaving bankers will never fear jail time<p>In October 2014, the Australian Securities and Investments Commission (ASIC) Chairman, Greg Medcraft, was <a href="http://www.smh.com.au/business/australia-paradise-for-whitecollar-criminals-says-asic-chairman-greg-medcraft-20141021-119d99.html">pretty forthright</a></p>
<blockquote>
<p>This is a bit of a paradise, Australia, for white collar criminals.</p>
</blockquote>
<p>Just a day later, reportedly after a phone call with Finance Minister Senator Mathias Cormann, he <a href="http://www.smh.com.au/business/asic-backflips-on-criminals-paradise-comments-20141022-119v22.html">attempted to clarify</a> his remarks.</p>
<blockquote>
<p>I correct that. Basically the point is that we want to make sure we don’t become a paradise.</p>
</blockquote>
<p>But as with much of what it has tried to do in the past five years, ASIC has been spectacularly unsuccessful, aiding the creation of a white-collar paradise, rather than hindering it.</p>
<p>But what would a white-collar hell hole look like? Mr Medcraft, gives us his perspective:</p>
<blockquote>
<p>The thing that scares white-collar criminals is going to jail and that’s what scares them everywhere in the world…The penalties, particularly civil penalties, in Australia for white-collar offences are basically not strong enough, not tough enough. All you’re doing is giving them a slap on the wrist [and] that is not deterring people.</p>
</blockquote>
<p>So since 2014, has ASIC been working assiduously to jail and fine white collar criminals, so they won’t do it again? Not in this paradise - ASIC hasn’t. Two examples, just this month, illustrate this.</p>
<p>First, ASIC has just <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-348mr-update-on-asics-investigation-into-comminsure/">released</a> its long-awaited report into the CommInsure scandal <a href="http://www.abc.net.au/4corners/stories/2016/03/07/4417757.htm#transcript">unearthed</a> originally by the ABC and Fairfax.</p>
<p>In summary, the ASIC report says that: Yes, CommInsure was using out of date medical definitions to deny claimants who were dying; Yes, CommInsure had to pay out millions to claimants who were found to have valid claims after all; Yes, Comminsure’s systems were inadequate and could not be properly audited.</p>
<p>But also no, there is no evidence of undue pressure on doctors to change their opinions; Yes, the firm’s claims processes were less than “best practice”; Yes the claims processes were inconsistent; No, there was no evidence that medical opinions were altered.</p>
<p>ASIC concluded that everything, despite evidence of unfeeling and incompetent behaviour, was legal! </p>
<p>And what punishment did ASIC mete out for such atrocious behaviour? In the sternest tones, Mr. Medcraft sent CommInsure a quiet little <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-065mr-asic-accepts-enforceable-undertakings-from-westpac-and-anz-to-address-inadequacies-within-their-wholesale-fx-businesses/">note</a> asking them to “engage an independent expert by July 2018 to conduct an implementation review”, into recommendations by a half dozen “independent inquiries”.</p>
<p>ASIC is telling CommInsure to do what it should have been doing all along. Let’s forget the past and mistreatment of customers, it’s paradise for firms that prey on the sick and dying.</p>
<p>But it’s not enough to be legal. </p>
<p>In the UK, Payment Protection Insurance (PPI) was, and is, perfectly legal. But that did not stop UK regulators <a href="http://www.telegraph.co.uk/news/2017/03/02/prepare-ppi-plague-fca-planning-42m-ad-campaign-will-spark-nuisance/">forcing banks</a> to pay some £23 billion (and counting) in remediation to customers for mistreatment of claimants who were sold inappropriate PPI contracts. ASIC is still reviewing the local insurance industry’s marketing and sales practices, but don’t hold your breath.</p>
<p>ASIC <a href="http://www.smh.com.au/business/banking-and-finance/cbas-insurance-arm-comminsure-told-to-reassess-rejected-heart-attack-claims-to-2012-20170322-gv4dif.html">claims</a> it has asked the government for more powers to tackle bad behaviour of the type exhibited by CommInsure as regards claims, but is still waiting on the reply.</p>
<p>However, ASIC does not have to wait. Back in 2015, ASIC <a href="https://theconversation.com/asics-fashion-faux-pas-44590">put its hand up</a> to be the “conduct regulator” and defined “conduct risk” as:</p>
<blockquote>
<p>The risk of inappropriate, unethical or unlawful behaviour on the part of an organisation’s management or employees. </p>
</blockquote>
<p>This means that ASIC does not have to prove illegality, merely inappropriate or unethical conduct, to take action. Having shelled out millions of dollars buying off mistreated claimants, not even CommInsure would claim that their behaviour was either appropriate or ethical. </p>
<p>But rather than do its job on tackling misconduct, ASIC has chosen to hide behind a shabby, legalistic defence. </p>
<p>Another example comes from mid-March, when ASIC <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-065mr-asic-accepts-enforceable-undertakings-from-westpac-and-anz-to-address-inadequacies-within-their-wholesale-fx-businesses/">announced</a> that it had accepted an “enforceable undertaking” with Westpac and ANZ regarding manipulation of a key Foreign Exchange (FX) benchmark. This is where the bank voluntarily enters into a binding agreement to do certain tasks that settle a contravention of the law. In this case failing to ensure that their systems and controls were adequate to address risks relating to the manipulation of the FX.</p>
<p>Just a few months ago, ASIC had <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-455mr-asic-accepts-enforceable-undertakings-from-nab-and-cba-to-address-inadequacies-within-their-wholesale-spot-fx-businesses/">accepted</a> a similar enforceable undertaking with the other banking pillars, the National Australia Bank (NAB) and the Commonwealth Bank. So, all four of the Big Four banks were implicated in manipulating key FX benchmarks. This is despite the claims by their CEOs, at the now-regular <a href="http://www.theaustralian.com.au/business/financial-services/banks-inquiry-nab-westpac-face-parliamentary-hearings/news-story/126e5f5215be19405cc9ec190f663afe">senate committee hearings</a>, that there was, to their knowledge, no “systemic” misbehaviour.</p>
<p>So what were the four banks accused of? Using Westpac as an example of the sort of conduct found by ASIC in all of the banks, over a period from 2008 to 2013, Westpac staff: disclosed confidential customer information to their mates in the market; disclosed the banks’ own positions to supposed competitors; changed their own positions after receiving insider information; and colluded with external parties to fix the market for their own profit. Similar, insider trading and collusion was reported for other banks.</p>
<p>In overseas jurisdictions, <a href="http://www.reuters.com/article/us-banks-forex-settlement-idUSKBN0O50CQ20150520">regulators</a> hit banks with over US$10 billion of fines for exactly the same misconduct, and also <a href="https://www.bloomberg.com/news/articles/2016-08-29/fed-bans-and-fines-ex-barclays-trader-in-fx-manipulation-probe">fined and banned</a> traders. In <a href="https://www.fca.org.uk/markets/market-abuse/regulation">Europe</a>, such conduct has been made officially illegal. </p>
<p>So what did ASIC do to scare the local white-collar wannabees? </p>
<p>They did not fine the banks nor bar the traders, but agreed with the banks that they would make “community benefit payments” of between A$2.5 and A$3 million each to support “financial literacy”. Yes, you heard right- $3 million for charity. </p>
<p>No fines, no sackings, no remediation for customers who were duded, no resignations, no cutting of bonuses, no apologies from the board. No repayment of ASIC’s legal fees (which the taxpayer picks up). No, just A$3 million measly dollars – a tiny amount compared to the banks’ billion dollar profits.</p>
<p>No wonder it’s paradise for white-collar criminals when the policeman has gone off snorkelling.</p>
<p>On the other hand, maybe there’s some genius in ASIC’s madness (for not rocking the boat)?</p>
<p>With Brexit, bankers are already starting to jump from the <a href="https://www.theguardian.com/business/2017/mar/21/goldman-sachs-staff-london-brexit-frankfurt-paris">City of London</a> , where better to set up shop than in Sydney or Melbourne? </p>
<p>No nasty Financial Conduct Authority, handing out big fines, just ASIC. No obnoxious Prudential Regulation Authority, just sleepy old APRA. No parliamentary committees <a href="https://www.ft.com/content/3cef50e6-d42b-11e6-b06b-680c49b4b4c0">harping on</a> about breaking up the banks. No <a href="https://www.fca.org.uk/markets/market-abuse">laws to stop market manipulation</a>. And most definitely, no <a href="http://www.parliament.uk/bankingstandards">Banking Royal Commissions</a>.</p>
<p>We can already see the <a href="http://www.afr.com/news/politics/where-the-bloody-hell-is-our-national-australia-brand-20150930-gjxy9u">marketing campaign</a></p>
<blockquote>
<p>It’s paradise for white-collar criminals down here, where the bloody hell are you?</p>
</blockquote><img src="https://counter.theconversation.com/content/75059/count.gif" alt="The Conversation" width="1" height="1" />
ASIC is telling CommInsure to do what it should have been doing all along. Let’s forget the past and mistreatment of customers, it’s paradise for firms that prey on the sick and dying.Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/551592016-02-23T00:05:18Z2016-02-23T00:05:18ZNational Australia Bank – 30 years of strategy failure<p>In its first quarter results this month, the National Australia Bank (NAB), breathed a sigh of relief <a href="https://yourir.info/b5feefbdd441bae08e2f4f4553858501/NAB_NAB_2016_First_Quarter_Trading_Update.pdf">announcing</a> that the “separation” of Clydesdale had been “successful” with an expected loss of approximately A$4.2 billion. Though the final number for the loss might be a little larger, the “demerger” of Clydesdale/Yorkshire Bank (CYBG) actually marks the end of a 30-year strategy of overseas expansion by NAB. </p>
<p>NAB’s “growth by overseas acquisition” strategy gives a rare opportunity to look at a corporate strategy over a very long period (almost 30 years) and while the strategy cannot be termed a catastrophic failure it was far from a roaring success. So why did NAB’s board persist in what was, for a very long time, a losing strategy?</p>
<p>The study of “strategy” usually involves looking at a successful company and trying to determine the reasons for its success. The rationale is that if one is smart enough to discover the reasons then those secrets can be packaged into a recipe which anyone can copy and therefore everyone benefits. Sometimes it works, sometimes it doesn’t – there are few Apples or IBMs, but there are many RIMs (makers of Blackberry – whatever happened to that firm?).</p>
<p>There is an old saying “Success has many fathers but failure is an orphan”. And typically when a strategy fails, such as that of <a href="https://theconversation.com/masters-a-failure-of-corporate-governance-53619">Woolworths</a> and Masters, the immediate reaction is to dump all of the blame upon the unfortunates who happen to be in charge when the bad news is finally given. [Here “unfortunate” is relative as there is quite often a payoff to cushion the blow, which is rarely unexpected anyway].</p>
<p>Henry Ford was one of the many business, political and military leaders who knew the advantage of failing, in that failure gives one the opportunity to learn</p>
<blockquote>
<p>“The only real mistake is the one from which we learn nothing.”</p>
</blockquote>
<p>So the study of strategy can benefit from considering failures and attempting to learn from them.</p>
<p>In the mid-1980s, Australia was a different country, not least one where a government could undertake major economic reforms without “<a href="http://www.smh.com.au/federal-politics/political-news/malcolm-turnbull-scott-morrison-face-backbench-backlash-if-liberals-hike-gst-20160203-gmkmvr.html">bed-wetters</a>” derailing it. By 1985, the Hawke Labor government (building on work started by the previous Fraser government) had floated the Australian dollar, deregulated the banking system and permitted 16 foreign banks to set up shop in Australia.</p>
<p>And following Australia’s win in the Americas Cup in 1983, there was an optimism that Aussies could compete as equals in the global economy. It was (until now?) the most exciting time to be an Australian businessman/person.</p>
<p>In 1987, the country’s largest bank, the National Australia Bank, headed by the combative executive director of banking and later CEO, Don Argus, sallied forth and bought the Clydesdale Bank, the Northern Bank in Northern Ireland and the National Irish Bank in the Republic of Ireland. NAB acquired these “Celtic Fringe” banks from one of the largest banks in the UK, Midland Bank, which, as a result of a failed expansion strategy into the USA, was under pressure to dispose of some assets in a fire sale. Surely NAB could do better than that?</p>
<p>In 1990, NAB ventured into England and purchased the Yorkshire Bank, a 120-year old bank headquartered in Leeds. The overseas expansion strategy continued and, in 1992, NAB acquired the Bank of New Zealand (BNZ) and in 1995 acquired the US based Michigan National Corporation (MNC), the bank’s first foray into the US market.</p>
<p>NAB was on a roll and, in its 1997 annual report, flushed with success the bank announced its vision was to be “the world’s leading financial services company” and it was continuing its strategy of “growth organically and through well considered acquisitions”. The board noted that the foundation for a “new phase” had been laid, especially creation of a “core processing centre [to be set up in Melbourne] to service all of its European banks”. Recognised as being a leader in technology, NAB also announced plans to develop online banking capabilities in Australia and New Zealand and telephone banking services in the UK and USA. </p>
<p>But overseas acquisitions were far from finished and, in 1998, NAB acquired HomeSide, Inc., at the time one of the largest mortgage servicers in the United States. The board had “identified considerable value from the application of HomeSide’s proven capabilities and systems”. In what was to be the first implementation of its so-called global “Product Productivity” strategy NAB noted that: </p>
<blockquote>
<p>“HomeSide will continue to build its profitable business in the United States while introducing its proprietary software and management practices across the Group – starting with Australia. In the process, HomeSide will create the first of the National’s global product specialists.”</p>
</blockquote>
<p>So as the century came to a close, thankfully without the armageddon prophesied by the Y2K bug, NAB was well-placed to grasp the opportunities of the 21st century. But it was to chart these new waters without its charismatic CEO Don Argus, who had announced in 1999 that he was jumping ship to become chairman of BHP Billiton, the world’s largest mining company.</p>
<p>There could not be a better time than 2000 to have a stocktake. What had NAB achieved in its 15-year quest to become the world’s leading financial services company?</p>
<p>Less than one might imagine. The banks that had been acquired were peripheral in the markets in which they operated, Scotland, Ireland and Michigan rather than in London or New York. In particular, Clydesdale remained a second tier bank, while its Scottish counterparts, the Royal Bank of Scotland and the Bank of Scotland, were growing manically, of course heading for a spectacular crash in the global financial crisis. Maybe NAB was lucky to dodge that bullet.</p>
<p>The bank’s idea that it could service this small but widely dispersed set of overseas banks from Melbourne was naïve, based on the assumption that a bank account was a bank account and a mortgage was a mortgage everywhere in the world. The bank was about to be disabused of this misconception in a few years, with the disaster that became <a href="http://www.theaustralian.com.au/business/dont-mention-the-h-word-at-nab/story-e6frg8zx-1111112576898">Homeside</a>. </p>
<p>It should be noted here that the acquisitions of BNZ and later in 2000 of MLC Life Limited (the insurance and investment arm of Lend Lease) should not really be seen as part of the bank’s international growth strategy but a reaction to the other large Australian banks acquiring local insurance and investment companies to become what are known as “universal banks”.</p>
<p>But the Millennium was the peak of NAB’s overseas adventures.</p>
<p>In 2000, NAB disposed of MNC to the large Dutch bank ABN-AMRO posting an accounting gain on the transaction of some US$1 billion, for a small “win”. But having spectacularly failed to understand the complexities of the US mortgage market, NAB was forced to offload its Homeside operations in 2002 booking a loss of over US$2 billion on the sale. This loss more than wiped out the smaller gain on MNC making the expansion overall into the USA a loss-making strategy for the bank. </p>
<p>In 2004 under new CEO, John Stewart, NAB agreed to entirely exit its Irish banking operations selling both the Northern Bank, and National Irish Bank to the Danish Danske Bank Group, booking a profit of just over A$1 billion on the transaction.</p>
<p>In 2005, the board restructured the UK operations subsuming Yorkshire Bank into the larger Clydesdale, “in order to reduce associated corporate and support infrastructure costs,” leaving Clydesdale as the only NAB bank remaining in Europe.</p>
<p>In a rush of blood to the head, NAB returned to the acquisition trail in 2007, acquiring the US privately held corporation Great Western Bancorp (GWB) for just over A$ 1 billion. The reason given was a potential match with one of NAB’s strengths in the Australian market - its leading position in lending to agribusiness.</p>
<p>The timing couldn’t have been worse, GWB was bought just as the global financial crisis heaved into view.</p>
<p>In 2009, the GFC began to hit home and NAB reported a significant drop in net after tax profits (- 42%) mainly due to charges for increased doubtful debts, especially in the UK, and investment losses in the MLC business. And, very quietly, the new CEO, Cameron Clyne, announced a change in the focus of the firm’s strategy – to concentrate on Australia. The beginning of the end.</p>
<p>But it is sometimes much easier to get into something than get out of it.
In 2011, the board announced that provisions had been set aside to cover claims against Clydesdale for mis-selling of Payment Protect Insurance (PPI) contracts and also announced credit rating downgrades not only on Clydesdale but also the bank itself. </p>
<p>In 2015, after first trying to float GWB, NAB sold it, booking a loss of A$67 million on the sale. This left only Clydesdale. After announcing in 2014 that the bank wished to sell its last remaining overseas acquisition, NAB eventually managed to offload Clydesdale in 2016 with a loss expected to be some A$4.2 billion. </p>
<p>With that, NAB’s overseas adventures were finished (at least for the time being).</p>
<p>With hindsight, NAB’s overseas acquisitions (with the exception of BNZ) were opportunistic rather than strategic, the corporate equivalent of a “quick pick” on the Melbourne Cup. Banks were acquired for little reason than they had come up for sale and were disposed of when the going got a little tough. The acquired companies were peripheral rather than major players to the markets in which they were operating and added little to NAB’s successful Australian businesses.</p>
<p>The bank never got close to achieving its goal of being the “world’s leading financial services company”. Hubris trumped by reality.</p>
<p>But it is not only NAB that is appearing to have second thoughts about international expansion. In January, the new CEO of ANZ Bank, Shayne Elliot, appeared to wind back the bank’s Asian ambitions championed by his predecessor Mike Smith, <a href="http://www.smh.com.au/business/banking-and-finance/anzs-elliott-wants-to-improve-asian-returns-20160127-gmezo0.html#ixzz40s3EkDkP">stating</a> that rather than focusing on targets for the contribution of Asian earnings, he would favour a “back to basics” approach, concentrating more on Australia and New Zealand. </p>
<p>Where do these retreats leave the much vaunted ambition for Australia to become a “financial hub” for Asia? Pretty much back at square one. </p>
<p>However, that may not be a bad thing for Australian investors. The recent <a href="http://fsi.gov.au/">Financial Services Inquiry</a> (FSI) recommended that Australian banks must be “<a href="http://www.reuters.com/article/2015/10/21/idUSFit93760220151021">unquestionably strong</a>” to ensure survival in volatile (if exciting) times. A little bit of <a href="https://theconversation.com/where-is-the-australian-financial-services-sector-going-49702">tending to the home front</a> for the next few years might not be such a bad thing.</p><img src="https://counter.theconversation.com/content/55159/count.gif" alt="The Conversation" width="1" height="1" />
In its first quarter results this month, the National Australia Bank (NAB), breathed a sigh of relief announcing that the “separation” of Clydesdale had been “successful” with an expected loss of approximately…Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/360432015-01-09T06:13:47Z2015-01-09T06:13:47ZDon’t expect queues around the block to buy the Clydesdale and Yorkshire banks<figure><img src="https://images.theconversation.com/files/68519/original/image-20150108-23810-4fdo9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Damn, forgot my PIN.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/funfilledgeorgie/11292697785/in/photolist-icU2BX-fv4zHx-arhibw-9LFyXu-9LFAem-9LFzNj-9LCLEt-4U4G71-4TZuCV-8i5kBR-97NCfi-6JM17d-9LFzjC-bckcht-bAryut-86QepX-bWujcH-cdRDWm-ahMyyh-aEjhRj-cdREd5-9Pj6RS-wypoU-dmfPXj-GakHM-dknjKc-djfZhq-djA8M7-8Jfr1Z-bEd5fT-djA9H6-8SdkA2-8SdmK6-cPC1u1-cPAT5N-cPASb3-cPB11j-cPAVZL-cPAX5s-cPAUGU-cPATUu-cPAY5J-cPAWpU-cPAZfh-cPAYLS-cPAWLj">George Redgrave</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>It came as no great surprise when David Thorburn <a href="http://www.ft.com/cms/s/0/2cbaf488-959d-11e4-b3a6-00144feabdc0.html">announced this week</a> that he was stepping down as chief executive of the troubled Clydesdale and Yorkshire banks. Having joined Clydesdale in the 1970s as a graduate trainee and been chief executive since 2011, he described it as “the right time” – and nobody disagreed. </p>
<p>From a strictly professional point of view, there was precious little for him to stick around for. It’s no secret, after all, that National Australia Bank (NAB), the increasingly disenchanted owner of both Clydesdale and Yorkshire, is <a href="http://www.smh.com.au/business/banking-and-finance/nab-looks-at-float-of-uk-business-after-profit-slump-20141030-11dzy1.html">desperate to</a> exit the UK market. </p>
<h2>What went wrong</h2>
<p>The writing was on the wall for NAB in the UK from the onset of the financial crisis. As the Australian economy and banking sector sidestepped the major effects of the crisis, bank profits at NAB continued to grow. In contrast, the failing UK economy and poor judgements combined to derail performance at both Clydesdale and Yorkshire banks and put a drag on NAB’s stronger operations. </p>
<p>The harsh business reality is that Thorburn, who oversaw a <a href="http://www.bbc.co.uk/news/uk-scotland-scotland-business-16919783">strategic review</a> as a reaction to head-office concerns, did what so many have done before: cut costs by <a href="http://www.bbc.co.uk/news/uk-scotland-scotland-business-26731308">making redundancies and closing branches</a>, in a basic attempt to increase performance. In his defence he shouldered the burden of the tough decisions and played his part in increasing performance and readying the brand for sell-off.</p>
<p>As Clydesdale chairman Jim Pettigrew <a href="http://www.bbc.co.uk/news/uk-scotland-scotland-business-30696826">put it</a> in bidding him a typically fond farewell, Thorburn helped “identify the changes needed to deliver sustainable and satisfactory returns”. In other words, he took the unpleasant decisions that may yet render Clydesdale and Yorkshire vaguely attractive to would-be buyers and investors in the event of a <a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11248299/Yorkshire-bank-plans-2bn-float.html">seemingly inevitable flotation or sale</a>. Job done; exit stage left.</p>
<h2>Only yesterday …</h2>
<p>It’s difficult to believe that as recently as four years ago NAB – which bought Clydesdale in 1987 and Yorkshire in 1990 – was regarded as a budding rival to the UK’s established high street banking giants. It was seen as a potential buyer of other branch networks and was <a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8671289/Lloyds-shares-fall-on-doubts-over-NABs-interest-in-branches.html">heavily linked</a> with a move for hundreds of Lloyds outlets, <a href="http://www.cbonline.co.uk/media/results-financial-information/clydesdale-and-yorkshire-bank-announce-annual-results">having apparently</a> evaded the major effects of the crisis. </p>
<p>The warning signs became clear in early 2012 a year after Thorburn’s elevation, when rumours of redundancies and a sell-off of the UK operation <a href="http://www.ft.com/cms/s/0/8cd7c296-5154-11e1-a9d7-00144feabdc0.html?siteedition=uk#axzz3ODmwZU97">began to circulate</a>. It was not longer before NAB <a href="http://www.moneymarketing.co.uk/nab-to-carry-out-strategic-review-of-clydesdale-and-yorkshire/1045691.article">noted that</a> “difficult conditions have adversely affected the performance of UK banking”. </p>
<p>With shareholders beginning to twitch at the prospect of the results at the Melbourne head office being dragged down, the restructuring plans were unveiled shortly after – infamously during Australian working hours when most of those who would lose their jobs in the UK were asleep.</p>
<p>Clydesdale and Yorkshire nevertheless <a href="http://www.scotsman.com/news/clydesdale-chief-says-bank-survived-credit-crunch-because-of-its-conservatism-1-472832">set out to</a> distance themselves from the ranks of “broken” banks. They had no wish to be lumped in with the likes of RBS and Northern Rock. They had a point insofar as no bailouts were needed, but theirs was hardly a glowing achievement either. </p>
<p>More recently, the apparent conservative approach enacted by Clydesdale and Yorkshire has also begun to show cracks. <a href="http://www.scotsman.com/business/finance/ppi-mis-selling-burden-leaps-at-clydesdale-bank-1-3568518">Hefty charges</a> to compensate victims of mis-sold payment protection insurance and business hedging products added to the storm, as did a raft of <a href="http://www.evolutionmoney.co.uk/news/clydesdale-and-yorkshire-bank-system-crashes-again">costly IT problems</a>. </p>
<p>With this serving as extra drag on sluggish overall performance, NAB <a href="http://www.theguardian.com/business/2014/oct/09/clydesdale-yorkshire-banks-ppi-national-australia-bank">issued a profit warning</a> last autumn and stepped up efforts to dispose of legacy issues and concentrate on its core domestic markets. The focus, in business parlance, has firmly been on “consolidation”. So what happens now?</p>
<h2>Sale prospects</h2>
<p>Jim Pettigrew <a href="http://www.scotsman.com/business/finance/thorburn-stands-down-as-clydesdale-bank-boss-1-3652088">said this week that</a> Clydesdale and Yorkshire are “in much better shape”. “Much better” isn’t the same as “good”, of course, but there has unquestionably been an improvement. A flotation or sale is a now far more realistic prospect than it was two or three years ago, when no-one in their right mind would have touched these banks. As NAB chief executive Andrew Thorburn (no relation) <a href="http://www.theguardian.com/business/2014/oct/30/national-australia-bank-sale-yorkshire-clydesdale">remarked last year</a> in discussing the “absolute priority” of quitting the UK: “We think there’s an opportunity now that probably wasn’t there before.”</p>
<p>Bank flotations have proved something of a mixed bag of late, however. TSB <a href="http://www.independent.co.uk/news/business/news/tsb-off-to-a-flotation-flyer-as-private-investors-like-to-say-yes-on-high-street-9553540.html">was able to</a> spin off from Lloyds with next-to no trouble. Virgin Money <a href="http://www.bbc.co.uk/news/business-29656263">delayed its public listing</a> in light of stock-market volatility. Aldermore, a challenger bank specialising in small businesses, <a href="http://uk.reuters.com/article/2014/10/15/us-aldermore-bank-ipo-idUKKCN0I40VR20141015">scrapped</a> its planned listing altogether. It may be worth noting the <a href="http://www.telegraph.co.uk/finance/markets/questor/11317955/Questor-share-tips-for-2015.html">emerging consensus</a> that 2015 will be a year of some turbulence.</p>
<p>The fact is that banking relies on a sort of natural oligopoly. We live in an age in which the importance of the branch has declined, staffing levels have plummeted, the internet has completely reshaped the landscape and complex instruments are increasingly used both to source funding and to manage risk. And yet the costs of entry remain high and the chances of success low. </p>
<p>This being the case, extraordinary shocks aside, the big players tend to dominate in perpetuity. Having more branches, being high up in the hierarchy and facing limited competition enables outflows and inflows to be calculated with more certainty. Large banks are thus assured that they can maintain most of the money in circulation among themselves. </p>
<p><strong>UK retail banking market shares 2013</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/68521/original/image-20150108-23798-dappf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/68521/original/image-20150108-23798-dappf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/68521/original/image-20150108-23798-dappf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=292&fit=crop&dpr=1 600w, https://images.theconversation.com/files/68521/original/image-20150108-23798-dappf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=292&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/68521/original/image-20150108-23798-dappf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=292&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/68521/original/image-20150108-23798-dappf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=367&fit=crop&dpr=1 754w, https://images.theconversation.com/files/68521/original/image-20150108-23798-dappf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=367&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/68521/original/image-20150108-23798-dappf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=367&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.bba.org.uk/wp-content/uploads/2014/06/BBA_Competition_Report_23.06_WEB_2.0.pdf">BBA/OFT 2013</a></span>
</figcaption>
</figure>
<p>This doesn’t make a smaller concern such as Clydesdale/Yorkshire particularly appealing. Yet they are still comparatively solid brands, despite the travails of recent years. They never have been viewed as genuinely “broken”. For a parent bank with a strong commitment to the UK, whose shareholders don’t see a presence in Britain as an eternal thorn in their collective side, they may still hold some appeal.</p>
<p>So Clydesdale and Yorkshire may yet bounce back in style. But it seems reasonable to suggest that when one of the world’s largest banks openly dreams of the day it can escape the UK – regardless of its reasons or motivations – optimism should be kept firmly in check.</p><img src="https://counter.theconversation.com/content/36043/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Webb does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It came as no great surprise when David Thorburn announced this week that he was stepping down as chief executive of the troubled Clydesdale and Yorkshire banks. Having joined Clydesdale in the 1970s as…Robert Webb, Associate Professor in Banking, University of NottinghamLicensed as Creative Commons – attribution, no derivatives.