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ANZ boss tells royal commission bank was too focused on revenue – live Bank branches becoming 'uneconomic', ANZ boss tells commission – live
(35 minutes later)
AMP’s acting chief executive, Mike Wilkins, wrapped up his evidence to the royal commission this morning.
It didn’t fill AMP’s shareholders with confidence. AMP’s share price has lost 3.7% today (as of 1pm AEST).
Wilkins stubbornly defended AMP’s “vertical integration” model this morning - the business model that has so obviously corrupted Australia’s financial industry in recent decades. Despite all the criticism from the royal commission, and the corporate regulator, about vertical integration, Wilkins reckons it is serving AMP well. It was a bizarre attitude.
Shayne Elliot, ANZ’s chief executive, took the witness box after Wilkins.
It takes ANZ over four years to identify an incident that’s later determined to be a significant breach.
It also takes ANZ 213 days after becoming aware of a breach to report the breach to ASIC. There is a legal obligation under section 912D of the Corporations Act to report significant breaches within 10 days of becoming aware of the breach.
He talked about the steps ANZ was taking internally to better remediate customers.
He also defended ANZ’s decision to shut down scores of bank branches this year, saying they had become uneconomic.
But with that we have broken for lunch.
The hearing will resume at 2pm.
Elliott insists that ANZ thinks seriously about its branch closures, taking things on a case-by-case basis.
He agrees there have been some cases where ANZ’s decision to close a branch has led to the final branch in a regional community shutting down.
Orr wants to know if people still go into branches to discuss significant things like home loans.
Elliott says they do, but for ANZ’s home loan book less than a third of home loans are originated through a branch – 55% come through brokers, another roughly 15% come through ANZ’s mobile banking network.
“So the branch network is not a terribly efficient or .. well-used avenue for home loans,” he says.
He said ANZ has two types of customers who come into its branches – consumer retail customers and small business customers.
“The last report that I saw from our network was that retail traffic, the number of people coming in and the number of things they do when they are there, is falling. I can’t remember the exact numbers but from recollection it’s close to, perhaps, 10% per annum.
“Small business usage remains reasonably solid, so it’s not shrinking.”
Orr changes the topic to ANZ’s branch network.Orr changes the topic to ANZ’s branch network.
This year ANZ has closed 35 branches.This year ANZ has closed 35 branches.
Its remaining network comprises 55 branches in inner regional areas, 44 in outer regional areas, six in remote Australia, and four in very remote Australia.Its remaining network comprises 55 branches in inner regional areas, 44 in outer regional areas, six in remote Australia, and four in very remote Australia.
Orr wants to know why ANZ has closed so many branches this year.Orr wants to know why ANZ has closed so many branches this year.
Elliott: “Well, consumer behaviour is changing very quickly. And not that it has changed just this year but over the last few years we’re seeing a number of fundamental changes.Elliott: “Well, consumer behaviour is changing very quickly. And not that it has changed just this year but over the last few years we’re seeing a number of fundamental changes.
He notes the Reserve Bank governor recently noted that the usage of cash has almost become a niche payment solution.He notes the Reserve Bank governor recently noted that the usage of cash has almost become a niche payment solution.
Elliott: “What do people do in branches? Much of it is related to cash, either deposits or withdrawals. So what we’re seeing is a significant fundamental in traffic in our shops, if you will. That fundamental has approached 20 to 30 per cent over a couple of years, and shows no sign of slowing. Elliott: “What do people do in branches? Much of it is related to cash, either deposits or withdrawals. So what we’re seeing is a significant fundamental in traffic in our shops, if you will. That fundamental has approached 20-30% over a couple of years, and shows no sign of slowing.
“So, essentially, we are confronted with a dilemma where we have shops and a distribution network with less and less people in it, and, therefore, at some point they become uneconomic.”“So, essentially, we are confronted with a dilemma where we have shops and a distribution network with less and less people in it, and, therefore, at some point they become uneconomic.”
Interesting.Interesting.
As part of ANZ’s attempt to ensure Mr Neave remains independent they’ve put him on a fixed three-year term which won’t be renewed. As part of ANZ’s attempt to ensure Neave remains independent they’ve put him on a fixed three-year term which won’t be renewed.
He’s only being paid a base salary, which is fixed. There won’t be any variable remuneration.He’s only being paid a base salary, which is fixed. There won’t be any variable remuneration.
What, no bonus!? But how could you expect him to do the job he’s been employed to do if he doesn’t get a bonus? He’ll be impossible to motivate.What, no bonus!? But how could you expect him to do the job he’s been employed to do if he doesn’t get a bonus? He’ll be impossible to motivate.
There has been a long discussion about ANZ’s “customer fairness adviser”.There has been a long discussion about ANZ’s “customer fairness adviser”.
In December 2016, ANZ appointed Colin Neave as ANZ’s customer fairness adviser with particular focus on remediation. Neave is a former commonwealth ombudsman.In December 2016, ANZ appointed Colin Neave as ANZ’s customer fairness adviser with particular focus on remediation. Neave is a former commonwealth ombudsman.
Neave’s role is to advise on customer remediation.Neave’s role is to advise on customer remediation.
Elliott says Neave has contributed greatly to internal discussions about what to do with customers who use ANZ products that end up causing them harm.Elliott says Neave has contributed greatly to internal discussions about what to do with customers who use ANZ products that end up causing them harm.
Consider the use of credit cards for gambling.Consider the use of credit cards for gambling.
Elliott says many people use credit cards perfectly responsible, and ANZ respects peoples’ individual choices and rights, but it also believes it has a responsibility to customers who can get into trouble.Elliott says many people use credit cards perfectly responsible, and ANZ respects peoples’ individual choices and rights, but it also believes it has a responsibility to customers who can get into trouble.
He says with regard to the use of credit cards for gaming, ANZ has changed a number of things: (1) how ANZ deals with people who have got themselves into difficulty and how it can put “speed bumps” along the way that make it more difficult for people to use those products irresponsibly.He says with regard to the use of credit cards for gaming, ANZ has changed a number of things: (1) how ANZ deals with people who have got themselves into difficulty and how it can put “speed bumps” along the way that make it more difficult for people to use those products irresponsibly.
Orr: “What sort of speed bumps are you thinking of, Mr Elliott?”Orr: “What sort of speed bumps are you thinking of, Mr Elliott?”
Elliott: “So, for example, to suggest - and it is difficult because we are talking about individual rights here - while you may be able to use our products at a gaming venue, we don’t want to see people use the maximum credit limits.Elliott: “So, for example, to suggest - and it is difficult because we are talking about individual rights here - while you may be able to use our products at a gaming venue, we don’t want to see people use the maximum credit limits.
“We want to always have people have some ability and flex left in their cash flow for normal expenses. So we will put essentially a sub-limit in on a card.“We want to always have people have some ability and flex left in their cash flow for normal expenses. So we will put essentially a sub-limit in on a card.
“If I’ve got a $5,000 limit in general - I am making this up here but hypothetically, maybe I can only use $4,000. Once I hit $4,000 I could not use that product for gaming purposes beyond there. Things like that.”“If I’ve got a $5,000 limit in general - I am making this up here but hypothetically, maybe I can only use $4,000. Once I hit $4,000 I could not use that product for gaming purposes beyond there. Things like that.”
Orr: “So is that something that you are considering as a way forward?Orr: “So is that something that you are considering as a way forward?
Elliott: “We are actually doing that. Yes.Elliott: “We are actually doing that. Yes.
Orr: “And have you commenced implementing that?Orr: “And have you commenced implementing that?
Elliott: “We are - we have to amend the terms and conditions of our products to allow us to do that with our customers.”Elliott: “We are - we have to amend the terms and conditions of our products to allow us to do that with our customers.”
And again on AMP, the sharp fall in the shares follows a release to the stock market confirming the figures revealed by Wilkins yesterday that the cost of fixing the company’s rep will be a hefty $778m.And again on AMP, the sharp fall in the shares follows a release to the stock market confirming the figures revealed by Wilkins yesterday that the cost of fixing the company’s rep will be a hefty $778m.
Here is that statement to the ASX.Here is that statement to the ASX.
And just to follow up on the AMP shares post, this is a chart showing how the stock has performed in the past 12 months.And just to follow up on the AMP shares post, this is a chart showing how the stock has performed in the past 12 months.
They touched a high of $5.245 in early March but the commencement of the royal commission that month has seen a steady decline set in. They have now more than halved in value.They touched a high of $5.245 in early March but the commencement of the royal commission that month has seen a steady decline set in. They have now more than halved in value.
For added perspective, the ASX200 is off 0.2% today. Shares in ANZ are down 0.26% and NAB is down 0.2%. Commonwealth Bank and Westpac are both up slightly.For added perspective, the ASX200 is off 0.2% today. Shares in ANZ are down 0.26% and NAB is down 0.2%. Commonwealth Bank and Westpac are both up slightly.
Shares in AMP have tanked this morning after the acting boss Mike Wilkins endured a fairly torrid time on the witness stand yesterday and today.Shares in AMP have tanked this morning after the acting boss Mike Wilkins endured a fairly torrid time on the witness stand yesterday and today.
They are selling for $2.335, a fall of 3.91%.They are selling for $2.335, a fall of 3.91%.
AMP, once a byword for the financial sector’s reliability and profit-making capacity, has seen its shares collapse this year as the royal commission has exposed misconduct and poor management. The conpany lost $1.5bn in value in one day’s trading in October after admitting customers were pulling their super from its accounts.AMP, once a byword for the financial sector’s reliability and profit-making capacity, has seen its shares collapse this year as the royal commission has exposed misconduct and poor management. The conpany lost $1.5bn in value in one day’s trading in October after admitting customers were pulling their super from its accounts.
He told the hearing that the cost of the wealth management firm’s “fix and rebuild” program to repair its reputation had blown out to $770m and involved 150 staff working full-time.He told the hearing that the cost of the wealth management firm’s “fix and rebuild” program to repair its reputation had blown out to $770m and involved 150 staff working full-time.
Elliott’s performance so far has been reasonable.Elliott’s performance so far has been reasonable.
It stands in severe contrast to Ken Henry’s, the chairman of NAB, who spent yesterday slouched in his chair, deigning to answer Orr’s questions when he thought they were worth responding to.It stands in severe contrast to Ken Henry’s, the chairman of NAB, who spent yesterday slouched in his chair, deigning to answer Orr’s questions when he thought they were worth responding to.
It will be fascinating to see what Hayne says about Henry in the final report.It will be fascinating to see what Hayne says about Henry in the final report.
Orr: “So where does customer remediation sit now on your list of priorities for the application of your resources?”Orr: “So where does customer remediation sit now on your list of priorities for the application of your resources?”
Elliott: “I don’t have a list of priorities that numbers them one through 10 or something. I have a group that are all important. Remediation is there. If we were to speak to our team who run the Australia business, of which this refers to, they would tell you - and they have - and it’s documented - that remediation is their number one priority as a team. If I look at our board - and I believe it’s documented in the minutes - have encouraged or ... demanded that remediation deserves to be a top priority of the organisation.”Elliott: “I don’t have a list of priorities that numbers them one through 10 or something. I have a group that are all important. Remediation is there. If we were to speak to our team who run the Australia business, of which this refers to, they would tell you - and they have - and it’s documented - that remediation is their number one priority as a team. If I look at our board - and I believe it’s documented in the minutes - have encouraged or ... demanded that remediation deserves to be a top priority of the organisation.”
She wants to know why ANZ has previously described customer remediation as a “distraction”.She wants to know why ANZ has previously described customer remediation as a “distraction”.
Asic uncovered an internal ANZ document in which a staff member said the bank put less focus on customer remediation – it was seen as a distraction, at the expense of earning revenue, and therefore not always given the highest priority.Asic uncovered an internal ANZ document in which a staff member said the bank put less focus on customer remediation – it was seen as a distraction, at the expense of earning revenue, and therefore not always given the highest priority.
Elliott said that was not an official view from ANZ. It was a mid-level executive who jotted down some thoughts ahead of ANZ’s attempt to recalibrate its approach to remediation this year.Elliott said that was not an official view from ANZ. It was a mid-level executive who jotted down some thoughts ahead of ANZ’s attempt to recalibrate its approach to remediation this year.
Elliott: “It’s not an official analysis, it’s a person’s perspective. It’s a valid perspective but I think that’s what it is and I think it is important to note.”Elliott: “It’s not an official analysis, it’s a person’s perspective. It’s a valid perspective but I think that’s what it is and I think it is important to note.”
Orr: “Can I start by asking whether you agree with that perspective?Orr: “Can I start by asking whether you agree with that perspective?
Elliott: “Well, I think there are elements with that. I take this person at their word. There will have been an element of that, most certainly. Whether it was widespread, whether it was the norm at ANZ, I don’t believe so.”Elliott: “Well, I think there are elements with that. I take this person at their word. There will have been an element of that, most certainly. Whether it was widespread, whether it was the norm at ANZ, I don’t believe so.”
Orr takes Elliott to the final finding in the ASIC report.Orr takes Elliott to the final finding in the ASIC report.
Asic found it took the major financial groups an average of 251 days to make the first payment to customers affected by a significant breach after the end of the investigation.Asic found it took the major financial groups an average of 251 days to make the first payment to customers affected by a significant breach after the end of the investigation.
It took ANZ an average of 198 days [woo hoo it’s not the worst for once].It took ANZ an average of 198 days [woo hoo it’s not the worst for once].
Orr flays him anyway, and rightly.Orr flays him anyway, and rightly.
Orr: “Now, again, is that too long, Mr Elliott?Orr: “Now, again, is that too long, Mr Elliott?
Elliott: “Yes. Absolutely.”Elliott: “Yes. Absolutely.”
Orr: “And why has it taken ANZ so long to remediate customers?”Orr: “And why has it taken ANZ so long to remediate customers?”
Elliott: “My investigation into this, and discussion with our teams has been - and this was a mistake on our part so I accept this was wrong – we had a culture of before we started remediating any customers we wanted to have total knowledge of the full extent of who exactly should be remediated and so there was a desire for exactness and completeness before we even commenced remediation.Elliott: “My investigation into this, and discussion with our teams has been - and this was a mistake on our part so I accept this was wrong – we had a culture of before we started remediating any customers we wanted to have total knowledge of the full extent of who exactly should be remediated and so there was a desire for exactness and completeness before we even commenced remediation.
“That was a cultural norm, if you will, within the company. It’s wrong. It’s flawed.“That was a cultural norm, if you will, within the company. It’s wrong. It’s flawed.
“And so what we have done now, with our remediation team, is we’ve adopted new principles and a new way of thinking about that which essentially says once we have sufficient knowledge where we can determine remediation even for a small number of customers, a cohort, we should start. So we don’t need to wait until we have 100% knowledge. We should start and do it in tranches and get going. We’ve already adopted that approach. It’s already having an impact in terms of our timelines. And it’s now something that we monitor.”“And so what we have done now, with our remediation team, is we’ve adopted new principles and a new way of thinking about that which essentially says once we have sufficient knowledge where we can determine remediation even for a small number of customers, a cohort, we should start. So we don’t need to wait until we have 100% knowledge. We should start and do it in tranches and get going. We’ve already adopted that approach. It’s already having an impact in terms of our timelines. And it’s now something that we monitor.”
Orr takes Elliott to a second finding in ASIC’s report that it took the major financial groups an average of 150 days after commencing an investigation to lodge a breach report.Orr takes Elliott to a second finding in ASIC’s report that it took the major financial groups an average of 150 days after commencing an investigation to lodge a breach report.
There is a legal obligation under section 912D of the Corporations Act to report significant breaches within 10 days of becoming aware of the breach.There is a legal obligation under section 912D of the Corporations Act to report significant breaches within 10 days of becoming aware of the breach.
Orr: “ANZ was an outlier on this front. Do you agree, Mr Elliott?”Orr: “ANZ was an outlier on this front. Do you agree, Mr Elliott?”
Elliott: “Yes, I do.”Elliott: “Yes, I do.”
The other major banks took an average of 104 days for CBA, 139 days for NAB, and 165 days for Westpac between commencing the investigation and lodging a breach report.The other major banks took an average of 104 days for CBA, 139 days for NAB, and 165 days for Westpac between commencing the investigation and lodging a breach report.
It took ANZ 213 days.It took ANZ 213 days.
Orr: “Would you still today be unable to look beyond seven years to see how many customers had been affected?”Orr: “Would you still today be unable to look beyond seven years to see how many customers had been affected?”
Elliott: “Not in all cases.”Elliott: “Not in all cases.”
Elliott tries to offer an explanation, saying ANZ’s business was extremely complicated with different lines of reporting and oversight.Elliott tries to offer an explanation, saying ANZ’s business was extremely complicated with different lines of reporting and oversight.
He says changes have been made, but he can’t say how long it will now take to identify a breach and report it to Asic. He would hope it could be significantly lower than 1,500 days.He says changes have been made, but he can’t say how long it will now take to identify a breach and report it to Asic. He would hope it could be significantly lower than 1,500 days.
Orr reads a case study from Asic’s report that involved ANZ.Orr reads a case study from Asic’s report that involved ANZ.
Asic found ANZ could not advise when one particular significant breach started, despite having conducted investigations for almost two years and identifying historical concerns with fee disclosure on some types of credit and debit cards.Asic found ANZ could not advise when one particular significant breach started, despite having conducted investigations for almost two years and identifying historical concerns with fee disclosure on some types of credit and debit cards.
The availability of ANZ’s data meant it could only identify instances that had occurred in the previous seven years (which totalled around $7m in overcharged fees for customers). As a result, the remediation was limited to the identified $7m over charged. Further investigation of unavailable data may have revealed a greater impact.The availability of ANZ’s data meant it could only identify instances that had occurred in the previous seven years (which totalled around $7m in overcharged fees for customers). As a result, the remediation was limited to the identified $7m over charged. Further investigation of unavailable data may have revealed a greater impact.
Orr: “Do you have any observations about how it could come to the point where an investigation had been conducted for almost two years which had found that customers had been overcharged around $7m but ANZ still couldn’t identify when the breach had started or whether this was the entirety of the amount that had been overcharged?”Orr: “Do you have any observations about how it could come to the point where an investigation had been conducted for almost two years which had found that customers had been overcharged around $7m but ANZ still couldn’t identify when the breach had started or whether this was the entirety of the amount that had been overcharged?”
Elliott: “The difficulty here was going back further into history where the data was unavailable. Therefore, it was impossible for us to try to reconstruct that data. We accept that the concerns or the fee issues may have actually predated the seven years. It’s really a technical inability to go and discover that.”Elliott: “The difficulty here was going back further into history where the data was unavailable. Therefore, it was impossible for us to try to reconstruct that data. We accept that the concerns or the fee issues may have actually predated the seven years. It’s really a technical inability to go and discover that.”
It takes ANZ over four years to identify an incident that’s later determined to be a significant breachIt takes ANZ over four years to identify an incident that’s later determined to be a significant breach
Orr takes Elliott to an ASIC report on the breach reporting practices of Australia’s major banks.Orr takes Elliott to an ASIC report on the breach reporting practices of Australia’s major banks.
It found Australian financial services licensees took, on average, 1,517 days to identify an incident that was later determined to be a significant breach.It found Australian financial services licensees took, on average, 1,517 days to identify an incident that was later determined to be a significant breach.
Orr: “And that number of days, 1,517 days, also happened to be the average time it took ANZ to do that. Is that right?”Orr: “And that number of days, 1,517 days, also happened to be the average time it took ANZ to do that. Is that right?”
Elliott: “I believe so, yes.Elliott: “I believe so, yes.
Orr: “So, on average, it has taken ANZ more than four years to identify an incident that’s later determined to be a significant breach?Orr: “So, on average, it has taken ANZ more than four years to identify an incident that’s later determined to be a significant breach?
Elliott: “Yes.Elliott: “Yes.
Orr: “Now, can I ask you what your observations are about that finding, more than four years to identify an incident?-Orr: “Now, can I ask you what your observations are about that finding, more than four years to identify an incident?-
Elliott: “Well, I mean, it’s clearly unacceptable and it’s not right.”Elliott: “Well, I mean, it’s clearly unacceptable and it’s not right.”