Why Sir John Key won't resign: there's different rules for the rich and powerful

Saturday, 1 June 2019

ANZ posts a bumper $1.99 billion profit in NZ.

OPINION: My Dad gave me one really good piece of advice.

Whenever I pointed out blatant unfairness, or unbalanced situations where it was obvious someone was gaining an advantage over someone else, usually me, he'd look me dead in the eyes when I wailed 'life isn't fair!', and say, 'no, it isn't'.

Conversation over.

A sense of unfairness, and wanting to see power held to account, I think has contributed to the explosion of interest in the call for former prime minister Sir John Key, chairman of our biggest bank, to resign.

* Reserve Bank censures ANZ for 'persistent weakness in process'

The ANZ board is stocked with people who you might assume would know a thing or three about bank capital.

* Reserve Bank plan 'has significant negative consequences for our country': banks

* ANZ breaches conditions of registration; no punishment from Reserve Bank

* Reserve Bank slams Westpac over 'serious non-compliance' with risk rules

Kerry McDonald was chairman of BNZ for 12 years until 2008 and also sat on the board of its owners, National Australia Bank from 2005 to 2008.

* ANZ chief executive on extended sick leave**

Let me recap.

ANZ's board, led by the former leader of our country, had been signing off on an operational risk model (which works out how much capital the bank needs in case of a shock or economic downturn) that had actually been dumped in 2014.

How did this come about? The Reserve Bank 'had encouraged' ANZ to review its attestation process, through which bank directors assess whether the bank is complying with the conditions of its regulations. It was only after this nudge that ANZ discovered the problem.

But before you get hot about it, it's cool. The Reserve Bank made it hold more money in case of a rainy day rather than lend it out in profitable ways like mortgages.

When the Reserve Bank found out, it stripped ANZ of its right to calculate how much risk capital it will hold. Yes, it used to be able to decide this itself.

This means our biggest bank is required to hold a further $277 million, taking it to a total of about $760m in case of bad news.

Ouchie.

Now, ANZ won't like this one bit. This ruling increases the minimum capital ANZ must hold by around 60 per cent.

As Simplicity founder Sam Stubbs has pointed out, one reason profits are so high here is the Australian owned banks have to provide less capital than locally owned banks to support their lending.

ANZ across the ditch announced a 2018 full year profit of $6.4 billion, while here it banked almost $2b.

So this will hurt ANZ in the wallet. But with the chunky-profits these Aussie banks make here, I think ANZ (who earned a record profit a sniff under $2 billion in the last financial year just in New Zealand) will cope.

But no-one has been held to account.

Unlike former BNZ chairman Kerry McDonald, who wrote to Reserve Bank governor Adrian Orr to call for heads to roll, I am neither amazed, nor surprised, at the penalty imposed on the bank. Thanks Dad.

He argues that Key, chief executive David Hisco, the highest paid bank executive in New Zealand who is currently off on sick leave, and several others, at ANZ should resign.

The bank's board had been signing this off for years, apparently without noticing if you give them the benefit of the doubt.

And it has to be said, Sir John Key wasn't there in 2014, 2015 or 2016 - joining the bank with his shiny new title smartly after leaving Parliament in 2017.

The board is stocked with people who you might assume would know a thing or three about bank capital.

There is of course chief executive David Hisco, ANZ Australia big boss Shayne Elliot, Air New Zealand chairman Tony Carter, Mercury and The Warehouse group chairperson Joan Withers, along with UDC Finance chairman Mark Verbiest and ANZ chief financial officer Michelle Jablko.

And while life, yes Dad, isn't fair - is it true that life is less fair for ordinary people than it is for big banks, corporates, and bigwigs with fancy titles like Sir John Key?

You only have to look at the white-collar crooks who get home detention in Auckland mansions for ripping off Kiwis with sophisticated scams masquerading as investments, versus the person on a benefit who had a partner that kept coming and going, and so it was found they've cheated the taxpayer.

Lock them up.

Or the exorbitant costs and compliance levelled on people by councils who just want to build a home to live in, while at the same time they sign off on poorly-built, unsafe shoebox high-rises and leaky builds and allow, and even approve, a mass destruction of ordinary people's wealth.

Still waiting for accountability there, too.

It's why when we get a letter from Inland Revenue about a tax return we freak out and call our tax agent, whereas companies will routinely go bust owing employees' PAYE, KiwiSaver entitlements, holiday pay and you can forget about your redundancy, you dreamer.

Maybe life isn't fair, but the lack of a head on a spike certainly makes it feel less so, where there has been a clear failure of governance and leadership from those who are so handsomely rewarded, and widely lauded, for holding these roles.

Clearly, the approach taken with Westpac in 2017 to force the bank to hold more cash on its balance sheet after the Reserve Bank found 'serious shortcomings and non-compliance' in its risk models didn't scare anyone.

Boo.

*This story has been corrected to update the ANZ New Zealand board members.