You Can Lead a Banker to Morals, but You Can’t Make Him Drink

I think we can all admit that seeing banking executives sweat under pressure over the past few months has been perversely enjoyable.

Those clean-cut, smarmy suits, usually tucked away in their air-conditioned offices where repercussions can’t seep in, were dragged out into reality for the first time in a long while. And it made for fantastic television.

The stereotype of the soulless, life-sucking, greedy banker was confirmed time and time again during the Banking Royal Commission hearings. To a degree that many of us, particularly the government, weren’t expecting.

We saw misleading advice given to the most vulnerable of customers, bribes accepted in exchange for loans based on fake documents, fees charged for services not received, and most disturbingly, fees charged to customers who had been dead for over a decade.

There was no shortage of theatrical drama either. The crux perhaps being when Dover Financial Services owner Terry McMaster fainted after being accused of lying about his customer protection policy — an event which, again, sparked public feelings of amusement rather than empathy.

Overall, the confronting revelations were in some ways unsurprising. This toxic, profit driven culture has always been a fundamental feature of banking. In fact, the financial services industry in an image, would be suited-up executives scrambling frantically to the top of a giant pile of cash, with (often ignorant) consumers left stranded and out of pocket at the bottom.

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Indeed, after hearing some of the 10,000 submissions (and a further 12,800 calls and emails) submitted by the public, it’s hard to deny that the current system thrives on rorting the average citizen.

The report has also rightfully referred 24 companies for possible criminal action to the regulators, including ANZ, AMP, Suncorp, CommInsure and NAB. A result which was long overdue.

As Commissioner Hayne wrote in his final report:

The damage done by that conduct to individuals and to the overall health and reputation of the financial services industry has been large.

Saying sorry and promising not to do it again has not prevented recurrence. The time has come to decide what is to be done in response to what has happened.’

In response to the commission’s findings, the coalition government has promised it will take action on all 76 of the recommendations listed by the Commissioner. You can read a summary of them here.

This is despite their initial determination to delay the process, which resulted in the commission being voted against 26 times. Former Prime Minister Malcolm Turnbull now admits that he regrets this decision, and that ideally ‘we should have got on with it earlier’.

But as Shadow Treasurer Chris Bowen astutely notes:

They attempted to avoid the royal commission, didn’t even believe in it. Even when they announced it, said it was regrettable. Voted against it 26 times. Their heart is not in it.

Whether the banks have the heart to enact the proposed changes (or have a heart at all) remains to be seen. But looking at the Big Four’s share prices in the wake of the commission report, it appears that they remain unperturbed by this entire fiasco…

An unexpected rally

For the most part, everyone was bracing for a drop in banking stocks in the wake of the commissioner’s report. But upon the report’s release, the opposite occurred.

Almost $20 billion in value was added to the four biggest banks, which is the single biggest increase in their combined market capitalisation in history. By Tuesday, Westpac was up 5.5%, and ANZ and CBA were up around 4%.

This was likely due to investors selling down their holdings in financial companies in anticipation of the report’s release, before buying back in and pushing up both demand and prices.

However it appears that the reason for the relief rally was the revelation that the banks got off relatively lightly. And after realising that the report wasn’t as scathing as it could have been, investors bought back in.

Now, this light-handed report may or may not be due to the commission being organised by a government who was extremely reluctant to change the current system, or establish a commission at all. Even now, Treasurer Josh Frydenberg and PM Scott Morrison have both refused to apologise for deliberately delaying the hearings.

That said, it’s hard to discern what the government’s true feelings towards the banks are. But here’s a chummy photo of the PM and his special guest NAB CEO Andrew Thornburn (at the Forum on Faith and Values of all places) for reference:


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Source: Scott Morrison Facebook Page

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It still unknown whether the recommendations from the commission will actually be enforced. No doubt it will be extremely difficult to change a culture that has been in place for decades. And financial execs will likely be back to chasing those fat stacks in no time.

Let’s also not forget that they’re called the Big Four for a reason. Australians have very few places to turn to when it comes to the banking sector, especially as those four banks control more than 80% of the home loan market. And with market concentration of that magnitude, there is little incentive to change.

While this may sound overly pessimistic, it’s the reality of the financial sector we all occupy. And as we pick up the pieces left by the commission, there’s no question it will take a long while for the public to regain their trust in the banks, if there ever was any to begin with.

The takeaway from all this? Watch your back and educate yourself. Because right now, we can’t escape those greedy, piggy-bankers.

This week in Money Morning

Hollywood blockbuster films like The Big Short really ham up the idea that only geniuses can make money in financial markets. Everyone else is simply too uneducated or lacks a savant-like quality to be successful. But as Harje wrote on Monday, all you need is a little common sense…

To read the full story, click here.

Then on Tuesday, Harje covered the Royal Banking commission. On Monday we saw some of the recommendations handed down by Commissioner Kenneth Hayne. But will anything actually change? Harje doesn’t believe so.

To read why, click here.

It’s just so typical. When there’s a big mess to clean up, governments and institutions turn to taxpayers. It doesn’t matter who made the bad choices. It doesn’t matter who put fuel on the flames. And as Harje wrote on Wednesday, the banking commission is no different…

To read more, click here.

Both the price and supply of money are factors that will affect you and your wealth in the future. And yet both are not determined by markets. They’re controlled by entities. And as Harje wrote on Thursday, this lack of control is also a feature of the incoming trade tariffs…

To read the full story, click here.

Intellectuals and interest rates…what do they have in common? They both don’t matter according to Harje. In Friday’s Money Morning, Harje discusses the role of intellectuals in banking, and as economist Thomas Lowe said, most of these intellectuals are developing ideas that will have no effect at all…

To read the full story, click here.

Until next week,

Katie Johnson,
Editor, Money Weekend

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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read. Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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