ANZ is building a case for stronger bank regulation

Tuesday, 18 June 2019

ANZ CEO David Hisco has gone from the bank after spending thousands of dollars on corporate cars and wine storage.

OPINION: Shortly after Sir John Key's breezy press conference to discuss the departure of ANZ chief executive David Hisco, a Beehive staffer admitted the former prime minister's performance 'sent chills down my spine'.

It was a reminder for the Left of an unflappable, unstoppable force.

For years the Labour Party watched as Key was able to deflect questions about all sorts of drama in a way that saw him dubbed 'Teflon John'.

Sir John Key, pictured with acting ANZ chief executive Antonia Watson. Key didn't mention that Hisco's business expense account, reported by the bank as 'non monetary benefits' topped A$464,577 in 2018.

His opponents simply could not make things stick.

* Six times ANZ has been in regulators' naughty corner

* Profits, strikes, settlements and huge paypackets: The ANZ career of David Hisco

* Sir John Key explains the expenses scandal that cost ANZ's Hisco $6.4 million

* ANZ chairman Sir John Key fronts media over chief executive Hisco's departure**

Key's famously relaxed disposition was on show on Monday, helping him get through interviews with little drama.

Most company directors would have been extremely nervous to sit before the cameras to explain that a chief executive was making expense claims in a way which hid the true nature of the spending, without detection, for close to a decade.

For Key, it was simply a 'blind spot'.

We might have expected that Key would have been contrite about the fact that the expense issue was only discovered after the chief executive of ANZ New Zealand's Australian owners launched a review.

This is particularly embarrassing for boards of New Zealand incorporated banks, which are meant to operate largely independently from their overseas owners.

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Key simply said the way the expenses were recorded made it difficult to detect.

Lesser beings might have shivered at the thought of explaining the timeline of events.

The review of Hisco's expenses had been underway for several months before it became public.

By the time Hisco's departure was announced on Monday, it was clear the review had to have been at an advanced stage when ANZ announced, on May 30, that Hisco was standing down temporarily for health reasons.

Key was vague about the timing. Asked if he knew about the expense issue when ANZ announced Hisco's sick leave, the former National Party leader simply talked about Hisco's health without answering the question.

'I have no doubt that the stress of this situation added to this, but he does have some genuine health issues.'

But it is becoming clearer that Key knew how serious the issue was before the sick leave was announced.

Finance Minister Grant Robertson publicly questioned whether ANZ had kept its regulator, the Reserve Bank, properly informed on Tuesday, prompting ANZ to give more details.

ANZ said it was 'sure … that it sufficiently understood the issues involved' by May 29, when it promptly informed the Reserve Bank.

This suggests that when ANZ announced Hisco's sick leave, the bank had completed its investigation, but decided to make no mention of it.

The most remarkable thing about Key's performance was his blithe dismissal of concern about the way ANZ's board handled itself around its failure to discover that it had been using an unauthorised model to calculate part of its operational risk model, since 2014, without knowing about it.

Key has faced calls to resign 'or be removed' by the former chairman of BNZ, Kerry McDonald, who wrote to Reserve Bank governor Adrian Orr saying so.

Speaking for the first time on McDonald's letter on Monday, Key declared it would be 'inappropriate' for him to resign.

Not only was the board entitled to rely on the advice it was given when making attestations to the Reserve Bank, Key said, the mistake had been made by someone 'quite junior in the organisation'.

It all sounded pretty plausible in real time, but Key's performance has surely put both the organisation he heads, as well as the industry, under more scrutiny.

After all the drama of the Royal Commission into the financial services industry in Australia, everyone in New Zealand banking circles is aware that the Reserve Bank is sensitive to claims that it is a light touch regulator which is being gamed by the money boys.

ANZ might believe its board was entitled to rely on what it had been told, but no one else has been held responsible for the mistake.

If the ANZ did not realise what was at stake, it should have become a little clearer on Tuesday when Robertson was downright dismissive of Key's explanation.

'That's simply not an acceptable response. It is the responsibility of the board and I'm sure Mr Key knows that,' Robertson said, adding that he was 'extremely disappointed' in the bank.

Robertson will soon move to the second stage of a review of the Reserve Bank, with this one looking at whether or not the current regime under which it regulate banks - which to a large extent is based on trust - is adequate.

He said he had already been asking for case studies to demonstrate whether the current system was adequate. ANZ is now likely to be case study number one.

Key's sunny outlook was a huge asset when he was in Parliament for the National Party.

But with a new Government and a new governor bringing a new outlook to financial services, Key is starting to look like an advertisement for stronger regulation.