All Big Four banks were down on the ASX today. Commonwealth Bank of Australia [ASX:CBA] fell 0.13% at $81.81, Australian and New Zealand Banking Group [ASX:ANZ] fell 0.93% at $27.75 today, Westpac Banking Corp [ASX:WBC] has also lost ground, down 0.17% at $28.75, and National Australian Bank Ltd. [ASX:NAB] fell 0.45% to $28.51, having been down as $27.83.
The ASX as a whole was down today, after another Trump Twitter blast sent jitters through global markets as investors mulled the threat of a further escalation in trade tensions.
The downturn in the share price for the Big Four comes after a report by the Sydney Morning Herald and The Age, regarding a huge leak in documents from inside NAB and the risks some executives were willing to take concerning their customers.
In the report, senior consultants from EY sat down with the then NAB Chairman Ken Henry five months before his calamitous royal commission appearance.
What was said in that boardroom?
In the minutes from the 13 June 2018 meeting, where the whistleblower tells the SMH and The Age that he feels ‘important problems’ were glossed over by the commission. This accompanies the leaked documents reported in the article.
So what approaches by the banks were found to be weak in these leaked documents? It includes attitudes concerning risks, technology challenges, poor controls, slow remediation and compliance issues.
The report also looks at the bank’s alleged inability to confront long-standing issues found ‘in its wealth management division, new anti-money laundering breaches and an internal rating of its financial crime risk as “excessive” and “not effective”.’
Furthermore, SMH and The Age report:
‘At the time of the review last year, NAB’s own risk ratings for compliance had been “red” on its internal traffic light system for at least 20 months, operational risk had been “amber” for 35 months and regulatory risk had been “amber” for 26 months, according to leaked internal NAB reports.’
This is what EY interview minutes had to say regarding Henry and compliance risks:
‘On compliance risk always you can argue that you can put more resources in (like cyber) but in reality he has no idea if NAB have enough or not.
‘Overall didn’t feel he has a good sense of where NAB is with compliance — and not sure they are in a better or worse spot than when he joined the board.’
Draft notes versus APRA notes
EY’s draft notes seem drastically different to what they wrote in their draft APRA review.
For example, this is an extract from the EY draft review on NAB:
‘Ridiculous amounts of [credit risk] systems, none of them talk together. Deterioration of quality of credit files due to huge turnover of bankers, complexity of credit policy, ever increasing compliance and risk requirements.’
But what did they tell APRA? Well, it seems to have painted a very different picture:
‘We see the credit risk framework as adequate and effective, we did note a number of ongoing challenges…. We note a high level of management awareness of these issues and a number of associated remedial programs in place…’
Overall, it appears EY saw many faults with the management side of the bank. Below is an extract:
Source: The Age/ Sydney Morning Herald
Kenneth Hayne ultimately sealed Henry’s fate with this statement in the final report released earlier this year in February:
‘Having heard from … the chair, Dr Henry, I am not as confident as I would wish to be that the lessons of the past have been learned … 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.’
While this report won’t do NAB, or any of the Big Four’s share price any favours, this isn’t the only issue that shareholders could be facing. Go here to find out what could be threatening the bank dividends.
For Money Morning