How Would You Choose to Punish the Banks?

The big banks and financial institutions of Australia have been hung out to dry.

The systematic rorting of Australians by these banks has been exposed for all to see.

It has been well publicised what the Commonwealth Bank of Australia (CBA) did to their customers. From giving a gambling addict who they knew couldn’t pay back the money a $30,000 loan, to continuing to charge people who they knew were deceased.

And these are just a couple of the stories that made headlines in the last few months.

They were also found to have charged financial advice fees after providing no service at all.

The ANZ, according to an article by the ABC, found that roughly 5% of customers received financial advice that was not beneficial or in their ‘best interests’.

ANZ have also been accused by the royal commission of teetering on the brink of breaking responsible lending laws, as they didn’t confirm their clients living expenses.

When asked whether the ANZ verifies a customer’s finances, and addresses the inconsistencies in their customers’ bank statements, ANZ’s general manager of home loans and retail lending Will Ranken, said, ‘No, not necessarily’. Completely disregarding their duty of care to the customer.

As with CBA, these are only a few of the injustices carried out by the ANZ against their customers.

Prime Minister Malcom Turnbull was against a banking royal commission. But he quickly changed his tune once evidence against the banks and financial institutions started pouring out.

Now their punishments have started to roll through.

Just this week, it was announced that CBA had settled on a $700 million fine in relation to money laundering charges.

It’s the biggest corporate fine in Australian history. Before this fine, the largest was TAB Corp at $45 million.

This fine also comes in at the fourth biggest corporate fine worldwide. However, it pales in comparison to France’s BNP Paribas fine of $12 billion. Although, that was on a match larger scale. The settlement in 2014 was due to violations of US sanctions imposed on Cuba, Iran and Sudan.

The CBA had initially set aside $375 million as a settlement. However, it was doubled to resolve the matter.

But is it severe enough? 

They’ll tell you, yes. But in the grand scheme of things, this will probably only be a blip on their radar.

As reported by the ABC, Thomson Reuters’ Asia-Pacific head of regulatory intelligence, Nathan Lynch stated:

At $700 million it’s equivalent to 25 days’ profit for the bank, which raked in $9.9 billion in profit last financial year.

For the average worker, being fined for 25 days of work is steep. But when the company makes a $9.9 billion profit in one year, it doesn’t affect anyone too greatly.

This minimal fine for years of rorting and dishonesty is a relief to shareholders. According to the ABC:

The market had factored in a fine of up to $1 billion. CBA’s two-day rebound of almost 2.5 per cent reflects a sigh of relief from shareholders, and an expletive from short-sellers hoping for something far harsher.’

While many believe that the punishment was light, it’s still higher than the average paid by European banks, which comes in at $660 million.

But as AML Solutions International (a compliance company) chief executive Todd Harland stated:

Every enforcement around the world has been too light.

‘[But this fine] took AUSTRAC out of the shadows, the impact is beyond the banking sector and will make other businesses take notice.’

It’s a different story for ANZ. The Australian Competition and Consumer Commission (ACCC) has charged ANZ executives with cartel activity. According to the ABC, ‘The ACCC confirmed it had laid charges criminal cartel charges against the ANZ, Citigroup, Deutsche Bank and six senior executives in relation to raise extra capital by selling shares to big institutional investors in 2015.’

The ABC notes:

The charges relate to the sale of $2.5 billion ANZ shares to institutional investors in August 2015.’

The sale was organised and underwritten by Citigroup, Deutsche Bank and third big global bank JP Morgan to boost ANZ’s balance sheet in accordance with demands from the bank regulator APRA.’

All three banks will defend their employees, as they continue to deny these allegations.

The investigation into the underwriting performed by the ACCC and ASIC regarding these banks has been going on for two years. But Citigroup believes they received guidance where underwriting was concerned.

In a statement published by the ABC, Citigroup said:

This is a highly technical area and if the ACCC believes there are matters to address, these should be clarified by law or regulation or consultation

Underwriting syndicates exist to provide the capacity to assume risk and to underwrite large capital raisings, and have operated successfully in Australia in this manner for decades.’

The matter will first head to court on 3 July. And according to the ABC, the punishments could include:

Under the Competition and Consumer Act, individuals found guilty face up to 10 years in jail and/or fines of up to $420,000 per criminal cartel offence.

Institutions face fines of up to $10 million per offence.

The Banking Royal Commission has uncovered some of the biggest institutional offences Australia has ever seen.

In a time where wage growth is stagnant and the cost of living is skyrocketing, Australians don’t deserve to be ripped off by the banks they should be able to trust.

This week in Money Morning

In Monday’s Money Morning, Harje looked towards investing. He used the ASX and NYSE to show the efficiency of the stocks investors typically invest in. And while many of the gems have already been found on these exchanges, that doesn’t many there aren’t more to come. In China however, investing is different. Chinese investors are drawn in by words such as ‘king’ and ‘red’. Exchanges in the Western world find many investors holding onto their stocks – collecting and reinvesting their dividends. Harje explains that in China, 80% of investors are day traders. To find out why it’s easier to find potentially great investments on an inefficient market such as China’s, go here.

In Tuesday’s Money Morning, Harje discussed why people choose to buy expensive products over cheap products. And it all comes down to quality. The more expensive a product is, the higher the quality. This isn’t really the case, but many of us are conditioned to think this way. But it’s one thing to buy an expensive product, and it’s another to invest in an expensive trade. To find out more about the difference in price and value regarding investing, go here.

On Wednesday, Harje looked into why we buy tech stocks. And he asked the question: Are tech stocks overpriced? When we think of tech stocks, some automatically come to mind. The likes of Chinese giant Alibaba, and the biggest online retail store: Amazon. Netflix is also up there. All these sticks are quite expensive. Yet investors keep buying them. And it all comes down to PE ratios. But that may not be the clearest figure to look at when deciding what tech stock to invest in. To find out where Harje suggests you should look, click here.

In Thursday’s Money Morning, Harje looks at attractive stocks. He uses Qantas as an example. When looking at Qantas stocks, they seem like a company that does well on the sharemarket. But is that really the case? Just because a stock looks good on the surface doesn’t mean that it is. A company like Qantas may be good to have for a while but, according to Harje, not forever. To find out how to look for a business that ages like fine wine, go here.

In Friday’s Money Morning, Harje explains that the only way to be a better investor is to be patient. Now, small-caps have the ability to increase quickly, but as Harje explains, if you want double or triple gains, then you have to wait it out. If you want to find out more about Harje’s advice and what the stock market is doing in 2018, go here.

Kind Regards,

Alana Sumic,

Editor, Money Weekend

Alana Sumic is part of the editorial team here at Money Morning. She contributes to bringing you Money Morning each day, along with all of Port Phillip Publishing’s many other publications.

As the Editor of the weekend edition of Money Morning Alana brings you a summary of the news for the week, and her own take on the week’s most important story in markets. She is also a writer and editor for Port Phillip Publishing’s political publication, The Australian Tribune.

Money Morning Australia