Banking Bad

by Adele Ferguson

  A decision had been made at CBA to keep CEO Ian Narev out of the spotlight, but by Saturday some commentators were calling for his head. So Narev’s minders changed tack and decided to offer a select few journalists a one-on-one interview with the CEO on the following Sunday. The invitation didn’t extend to me or any of my colleagues at the Sydney Morning Herald and The Age. Narev’s messages relayed to journalists from the Financial Review and The Australian were aimed at the investment community, regulators and politicians. He made it clear he had no intention of quitting his role. ‘I am really committed,’ he told the Financial Review, adding, ‘I am really enjoying the job. The board has made its view clear and I am going to keep going until I can’t give it 100 per cent or the board decides there is a better option.’5

  On Tuesday 8 August, Catherine Livingstone, chair of the CBA board, was called to Canberra to see Treasurer Scott Morrison.

  Morrison later reported to parliament, saying he’d told Livingstone he’d taken advice from Treasury, APRA and ASIC. ‘The matter that AUSTRAC is pursuing in the courts with the Commonwealth Bank of Australia is very, very serious, and that matter should be properly pursued through the courts,’ he said.6 Turnbull told parliament that to call a royal commission would see legal action against CBA delayed or stayed, saying, ‘AUSTRAC is on the case, doing its job. It’s uncovered the wrongdoing and it’s pursuing it.’7

  In a PR strategy to win media and community support, Livingstone issued a media release on 8 August, saying the short-term variable bonuses of all senior executives, including Narev, had been scrubbed for 2017 and the board had cut its fees by 20 per cent. It was an attempt to demonstrate shared responsibility for the damage done to the bank’s reputation and defuse some of the anger ahead of the release of the bank’s annual results, scheduled for the following day. Livingstone also threw her weight behind Narev, saying he ‘has the full support of the Board’.8

  But it was too late. The cutting of short-term bonuses for executives was seen by the public as a hollow gesture, given that senior executives earned millions of dollars a year. Heads needed to roll. Matt Comyn, who until the AUSTRAC affair had been considered Narev’s heir apparent, was clearly vulnerable, as the scandal had happened in his retail bank under his watch.

  *

  As the doors were flung open for CBA’s profit announcement at the bank’s head office in Sydney, TV crews, photographers and journalists flooded in. Narev entered soon after, trying to project calmness as he greeted the media circus. I dialled into the press conference from Melbourne and noted Narev’s demeanour. It was a tough juggling act trying to navigate the AUSTRAC scandal at the same time as announcing a record profit of almost $10 billion. ‘Obviously, the Commonwealth Bank’s had a lot of attention over the last few days for not great reasons, for reasons that don’t reflect well on the bank, or on me,’ he began. His attempt at contrition faded as he started to rattle off improvements in customer satisfaction surveys, people and culture surveys, and the success of the bank’s new Speak Up policy for whistleblowers.

  Narev’s speech smacked of hubris and a disconnect with reality. For the previous year CBA had been batting off the scandal at CommInsure and the continued fallout from the financial planning debacle. During the press conference he revealed that the bank was selling CommInsure; yet at the same time he assured the media the decision to sell had nothing to do with the scandal.

  His response prompted widespread criticism. There was hardly a senior figure in Australia who didn’t then put the boot into CBA and the banking sector as a whole. The Reserve Bank governor, Philip Lowe, used a Senate Economics Committee hearing in Melbourne to make a critical speech about the banks and their short-term profit mindset and cultural collapse, saying, ‘The desire for short-term profit has meant not enough attention is being paid to risk management, trust has been strained, banks know that.’9

  Even ASIC seemed to have had enough. In a separate parliamentary committee hearing held in Sydney, ASIC’s chairman, Greg Medcraft, announced he would be launching an ASIC investigation into whether officers and directors at CBA had complied with their duties under the Corporations Act, and whether CBA had complied with its continuous disclosure obligations, its licensing obligations and its financial reporting obligations. The board of a company is responsible for overseeing the tone and culture of a company. It is also responsible for ensuring the company meets all compliance and risk management requirements, has the right senior management in place and oversees the company’s remuneration policies. The CBA board’s handling of the bank’s various scandals, including the financial planning scandal, the life insurance scandal and the AUSTRAC scandal had been a disgrace.

  *

  On Monday 14 August 2017, at 8.21 am, eleven days after AUSTRAC had launched legal action, seven days after Narev had said he wasn’t going anywhere, and less than a week after the CBA board had expressed its ‘full support’ for him, the bank issued an ASX announcement saying that Narev would be gone by June the following year. On the same day, the PR department organised a teleconference fronted by Catherine Livingstone. I was keen to hear how the bank planned to spin this one.

  Livingstone denied outright that Narev’s retirement plans had anything to do with the AUSTRAC scandal. She also confirmed Narev still retained the full support of the board. Her message was that Narev was approaching six years in the role, there’d been organisational discussions and decisions made, and that CBA was just being transparent by telling the ASX, given all the speculation about his tenure.

  When asked if Narev had offered his resignation, Livingstone ignored the question and said, ‘Ian has done a remarkable job and the board has full confidence in his continuing as chief executive right up until the day that he leaves.’ During Narev’s tenure, which had begun on 1 December 2011, CBA’s share price had soared from $48.39 to $81.49, so his focus on profit had been rewarded. However, with scandals mounting, it was time for him to go.

  Chapter 15

  About-turn

  The reluctant royal commission

  THE ATMOSPHERE WAS ELECTRIFYING. Minutes before 10 am on 15 November 2017, millions of Australians stopped and tuned in to hear David Kalisch, head of the Australian Bureau of Statistics, deliver the verdict on a national postal vote on same-sex marriage. Crowds gathered in the streets, at special events, and in hotels, pumping the air as Kalisch declared that a majority of Australians had voted yes. The applause was deafening and some burst into the song, ‘I am, you are, we are Australian.’

  Prime Minister Malcolm Turnbull, who had flown back to Australia that morning, declared history had been made. ‘They voted yes for fairness, yes for commitment, yes for love.’1 People rallied, calling on the Coalition government to act on the verdict and pass the necessary legislation to make it law.

  But not everyone was jubilant. In the days before the official count of the postal vote, a small group of social conservatives in the right wing of the Liberal and National parties had become concerned that a private member’s bill drafted by moderate West Australian Liberal Senator Dean Smith to enable same-sex marriage would wind back religious freedoms and human rights. ‘In the event of a “yes” vote, the Dean Smith bill is an insufficient basis to start the conversation,’ Liberal senator Eric Abetz told the Sydney Morning Herald on 10 November.2 Abetz, who’d been part of the conservative ‘no’ campaign, was backing an alternative bill by Liberal Senator James Paterson, which called for greater religious guarantees than Smith had proposed in his bill.

  In defiance of Abetz and others and as pressure mounted on Turnbull to act decisively, Smith introduced his private member’s bill to amend the Marriage Act to the Senate on 15 November. He had the backing of the Greens, Labor and a few independents.

  Sections of the National Party saw Smith’s move as treacherous. Tensions had been brewing inside the Liberal and National parties for some time and they were about to blow wide open. Ex-Queensland police detective, grazier, property developer and Nationa
ls Senator Barry O’Sullivan had taken particular umbrage at Smith’s ploy to push his bill through the Senate. O’Sullivan told Wacka Williams, ‘Two can play that game.’

  O’Sullivan’s idea was that if the progressive Liberals could use a private member’s bill and get cross-party support for their cause, why not do the same for a commission of inquiry into the banks. O’Sullivan had a number of constituents who were farmers and was well aware of their poor treatment by the banks. As a member of the Coalition he had fallen into line with the party’s position on a royal commission, but privately he believed one was warranted.

  The advantage of a commission of inquiry was that it would have similar powers to a royal commission but didn’t need to be established by the government, and would report to parliament, not the government. O’Sullivan was also of the view that the Nationals had to start differentiating themselves from the Liberal Party.

  O’Sullivan’s logic was persuasive. A number of Nationals, including Wacka, had long wanted a royal commission into the banks, and the polls were showing Australians wanted one, so why not? The Greens had already introduced a private member’s bill for a royal commission in the Senate on 21 March 2017, with the support of the ALP, some crossbenchers and One Nation, so cross-party support was already there. ‘Australians want their day in the sun,’ O’Sullivan said. ‘If it’s good enough for conservative governments to have royal commissions into trade unions, Pink Batts and detention centres, then it is good enough to have one for the banks, as they are more corrupt than the unions and on a scale much bigger.’3

  O’Sullivan discussed his plan with Wacka and said the new bill would incorporate the intentions of the Greens’ private member’s bill as well as a Banking Commission of Inquiry Bill independent MP Bob Katter had proposed in late 2016 after seeing how farmers had been treated by the banks. That way he would have ready-made cross-party support, just as Smith had received for the same-sex marriage bill. On 19 November, I called O’Sullivan to assess how serious he was. His message to me was clear: he had cross-party support in the Senate and he believed he had it in the House of Representatives. With Barnaby Joyce and John Alexander out of the House fighting by-elections caused by the dual citizenship fiasco, O’Sullivan only needed two backbenchers to cross the floor, and he was confident he had between two and five. I wrote up the story for the Financial Review on 20 November.4

  As speculation swirled around Canberra, bank lobbyists descended like swat teams trying to gauge the temperature on O’Sullivan’s bill. The banks still had the direct ear of government through the powerful Financial Sector Advisory Council (FSAC), a body Kelly O’Dwyer had set up in May 2016 in response to David Murray’s 2014 Financial System Inquiry, which included a recommendation to set up such a council to provide the government with advice on the performance of the regulators – ASIC, APRA and the Reserve Bank – and on policies relating to the financial system, including potential areas for regulatory reform. Its nine-member board included Westpac CEO Brian Hartzer, AMP CEO Craig Meller and Suncorp CEO Michael Cameron. But there was only so much influence the FSAC could wield in an environment where support was growing rapidly for a commission of inquiry or a royal commission, either now or when Labor came to power. Some banks had already started preparing for that day by booking law firms and QCs and planning their PR strategies, bank insiders confirmed.

  O’Sullivan and Wacka hit the phones hard. Wacka rang Queensland Nationals senator Llew O’Brien, a relative newcomer to politics, having won the blue-ribbon conservative Queensland seat of Wide Bay in July 2016 after Warren Truss retired. ‘Llew, I want you to muscle up. I want you to come out and publicly support a royal commission,’ Wacka told me later.

  O’Brien had been a country policeman working out of a two-man police station before becoming a politician. He knew nothing about the cut and thrust of high finance, but he’d seen the human misery caused by bank misconduct. He also had firsthand experience of the games life insurers played when it came to discriminating against customers with a mental illness, having been diagnosed with post-traumatic stress disorder while he was a policeman. O’Brien saw a royal commission or commission of inquiry as a chance to get life insurance and mental illness on the agenda. He had made his views clear to Barnaby Joyce a few months after winning his seat, but Joyce had told him to keep his head down. ‘Barnaby spoke about the risks involved with a royal commission and some of the things that they were doing that would help small regional businesses. I decided not to come out publicly at that time, but I was certainly a sleeper on a royal commission,’ he says.

  O’Brien’s vote would be significant, since lower house National MP George Christensen, another Queenslander, had already made it clear months earlier that he supported a royal commission and was willing to cross the floor to get one. Christensen was conscious that One Nation was a danger to his seat and that Pauline Hanson had earned a lot of brownie points among farmers by voicing her support for a royal commission in July 2016; he had since been working behind the scenes with Bob Katter, who continued to be a strong supporter of a royal commission. All at once, O’Brien became the key to turning a banking commission of inquiry into reality. If he went public, it was now almost a certainty.

  *

  The next ten days would make history.

  On Monday 20 November, a contact in parliament tweeted me, saying, ‘Just heard a whisper that Turnbull is cancelling a week of sitting to avoid O’Sullivan’s private member’s bill for a commission of inquiry into the banks. If true, the Nats will go nuclear.’

  It was true. Turnbull had been spooked by the media speculation that O’Sullivan was working the numbers in the lower house. O’Sullivan already had Christensen’s vote, now there was talk that O’Brien had turned. The government took the unprecedented step of postponing a sitting of the House of Representatives to avoid a showdown.

  On Wednesday 22 November, the Daily Telegraph reported a leak in Cabinet about a discussion regarding O’Sullivan and his banking commission of inquiry.5 The article said that Immigration Minister Peter Dutton had suggested the government drop its opposition to a banking inquiry, but Treasurer Scott Morrison had argued it was best to hold the line. The leak of Cabinet discussions was the best illustration yet that the Coalition was in trouble. It was so serious that Julie Bishop called for an investigation to find the source of the leak.

  Former Prime Minister John Howard, a long-time supporter of the banks, said, ‘I would be staggered if the Coalition proposes a bank royal commission, that is rank socialism.’ Howard urged the banks to hold the line and predicted disaster if a royal commission was held. He said the banks had ‘demonstrated in 2009 that they were amongst the best run, the most prudentially supervised and the most well capitalised in the world’.6 Howard’s glowing endorsement would come back to haunt him and the many, many others who’d argued an inquiry into banks was a waste of time.

  It was a hectic period for the Coalition government, which was already in strife. It was polling badly, members were threatening to cross the floor, backbenchers were uneasy, and now there were leaks in Cabinet. The Queensland state election campaign was in full swing and the Federal Government was worried that a bad result in Queensland would spread further gloom in the party. But the number crunchers didn’t think O’Sullivan could muster enough votes in the lower house, and even if he did, they thought they could win them back – as they always had.

  Just as Labor had attempted, but failed to do earlier, Scott Morrison decided to try to get the banks to support a compensation scheme of last resort, which he believed would pacify O’Sullivan and other National Party rebels. Morrison organised an urgent meeting with the chairs of the big four banks to discuss the idea. Again, they rejected it. Morrison had already hit them up for a $6.2 billion bank levy in the May Budget, which they weren’t happy about.

  The business sector was also concerned at the language Morrison was increasingly using against the banks. In an interview with the Daily Telegraph
he’d employed the term ‘voodoo’ to describe the setting of rate rises by the banks and warned that the competition watchdog, the Australian Competition and Consumer Commission (ACCC), would monitor the rises carefully.

  It was death by a thousand cuts.

  The bank meeting with Morrison had another effect. It prompted the bank chairs to reach out to each other and discuss the best way to handle the situation and win back community trust. ANZ chairman David Gonski, who was renowned for his diplomacy, had long held the view that ANZ had to go soft and not antagonise the government or the community. ANZ and the bank’s chief executive, Shayne Elliott, had always been the first to offer mea culpas for bad bank behaviour. As well as being a friend of Turnbull, Gonski had headed the government’s education review. He had taken a more conciliatory stand than other bank heads in May when the government had hit the banks with the multi-billion-dollar levy for poor behaviour. Though he didn’t like the levy, he hadn’t agreed with the shrill response of the Australian Banking Association and some of the other banks. He held the view that you don’t build bridges by launching a street war. Along with NAB’s chairman, Ken Henry, Gonski reached the conclusion that the banks needed to take back control of the agenda regarding a commission of inquiry into the financial sector, and find the best path forward as quickly as possible, before events overtook them.

  On 25 November, following poor results for the Coalition in the Queensland state election, O’Sullivan was certain the time to act had come. ‘Since the Liberals and Nationals in Queensland merged in 2008 we have become homogenous, and One Nation and others were filling the third-party vacuum the merger created,’ he told the Financial Review. ‘There’s been a clear message sent to us. We have to differentiate ourselves, and behaviour and policy are the two ways.’7

  Turnbull was now in very real danger of being defeated in the lower house. By the time he called O’Brien on 27 November, it was too late. ‘Malcolm pointed out how significant a move it was, particularly for a first-term MP,’ O’Brien recalls with a laugh. But O’Brien had heard all the arguments about the risks to the economy, how it would undermine the country internationally and how expensive it would be. When Turnbull asked O’Brien how much he thought a royal commission might cost, O’Brien pointed out that the government had already spent $122 million on the same-sex-marriage postal vote. O’Brien also drew a parallel between the cost of a royal commission and the $100 million Turnbull had pledged towards the building of the Townsville Football Stadium, which O’Brien thought was a waste of money.