Banking Royal Commission: CBA in the dock

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Commonwealth Bank CEO Matt Comyn, under the spotlight (Screenshot via YouTube)

Dr Evan Jones gives a first-hand account of the Commonwealth Bank's time under the microscope during the Banking Royal Commission.

‘I was stunned to read your headline (“CBA: We put profits ahead of people”).
Looking forward to tomorrow's: “Scientists discover that the sun rises in the east”.’

- Matt Petersen, Randwick (Letter in Sydney Morning Herald, 21 November 2018)

The Royal Commission hearings regimen

I attended the Banking Royal Commission hearings in Sydney on 19 and 20 November. That was enough for me. CBA CEO Matt Comyn and CBA Board Chairman Catherine Livingstone were in the dock. (Both chose to swear an oath by Almighty God that they would tell the truth, for god’s sake.)

It’s a tedious affair (unless one revels in seeing the big shots facing questioning). Those who sit through these hearings day after day to experience the ambience and observe the slow progression of events deserve praise and sympathy.

The mainstream media has covered rather well some highlights of the disclosures. As then head of Retail Banking Services, Comyn had acquired the view that some of the CBA’s offerings were dodgy — including credit card insurance and trailing commissions to mortgage brokers. For example, as many as 64,000 customers had been sold credit card insurance for which they were ineligible. This issue had already been reported. What we now discover is that Comyn had attempted reform over a considerable period for products for which he was formally responsible, but was stymied by his superiors and by heads of other services (“wealth management”). In particular, at a meeting in May 2015, then CEO Ian Narev told Comyn that he should temper his sense of justice.

What we also discover for the first time is that several division heads had expressed discomfort at the CBA’s general trajectory, but were ignored.

Similarly, Catherine Livingstone’s actions (or rather inactions) during her time as CBA Director after March 2016 (before she became Board Chairman in early 2017) came under scrutiny. Counsel Assisting, the redoubtable Rowena Orr, wanted to know why Livingstone hadn’t voiced concerns during this period. Livingstone claimed that she did voice concerns at one Board meeting, but couldn’t remember whether it was in October or December.

Orr pointed out that no such event was recorded in the Board minutes. Livingstone then claimed that Board minutes were not necessarily inclusive of all discussion. Following which there was a little dispute about whether the integrity of Board minutes sui generis was up for grabs or rather the integrity of Livingstone’s memory and, behind that, the character of Livingstone’s commitment.

Comyn came across as generally in control of himself, possibly a decent chap all 'round if he wasn’t in banking. By contrast, Livingstone’s performance was appalling. She had no presence. This from a woman with a seemingly impeccable background overseeing big companies. She proved herself Exhibit A in why one should have little faith in the round robin directorial class that presumes to watch over corporate enterprise in Australia. (NAB’s Board Chairman Ken Henry would demonstrate similar arrogance and ineptitude at the hearings beginning Monday 27 November.)

The Royal Commission hearings as superficial

The media’s time horizon is very short indeed. Sounds bites are its sustenance.

The Banking Royal Commission has generated much copy. Unexpected colour has been added by the Counsel Assisting Rowena Orr. Orr is in control of her material and has the requisite killer instinct while possessing none of the odium of the classic macho male barrister. The Commissioner himself, Kenneth Hayne, is colourless. Possibly desirable to embody decorum, but his interjections rarely rise above the pedestrian.

Missing in these Commission hearings is the depth, the background.

These last two weeks (19–30 November), when CEOs, Board Chairmen and regulators are being interrogated, are formally oriented to causes of financial institution “misconduct” and means of transcending it.

Well, you can’t get to there (causes) and there (policies) from here. Not least because those previous senior executives who presided over many of these crimes have not been called to appear (Ralph Norris, Cameron Clyne, Mike Smith, Gail Kelly, and so on) and are now enjoying a comfortable retirement — more, with their “reputations” still intact.

Small business and family farmers missing from the hearings

A significant dimension is missing from the Royal Commission hearings. A glaring, huge absence. It is a matter of the large class of small business and family farmer victims. In this rounding-up agenda of the Royal Commission hearings, they don’t exist.

This, in spite of the fact that the most regular attendees in the gallery at the hearings are small business and farmer victims. On the days I was there, this mob with supporters numbered a dozen. Some choose to sit behind the counsel assisting so that they perennially appear in media visual representations of the hearings. The Royal Commission authorities know who they are. They have made their presence felt. They are not there to pass the time.

But no. There are no SME/farmer victims. We’re talking fraud here. Theft on a grand scale and the heartless destruction of people’s livelihoods and well being. Nowhere to be seen.

On three occasions Rowena Orr asked Comyn a question to the effect of “are there any other arenas that you think the bank [CBA] has failed its customers?” On no occasion did Comyn mention SMEs and farmers.

At one stage, Comyn compared the CBA’s failings in the “wealth management” arena with the bank’s “core” business of banking, with the implications that here was a lily-white arena of competence and integrity. None of the media picked up the hyperbole.

At the hearings, counsel assisting has been displaying in public the dirty linen of bank internal correspondence. Why could the Commission not then do the same with defrauded borrower documentation? Why not put falsified, altered, incomplete or disfigured loan application forms, forged signatures and emails recommending brutal treatment up on the Commission hearing screens? There would be pandemonium. Real rather than mock shock horror would result. As there should be. The whole edifice exposed for a necessary dismantling.

But it hasn’t happened.

What’s going on? Can this omission be an oversight?

There is more sense in calling it a strategic decision on the part of the Commission, or perhaps on the part of a larger political and financial establishment of which the Commission is a product. The hearings devoted to SMEs (Round 3) were both perfunctory and, with respect to victims of the CBA takeover of Bankwest, deplorable. The same mentalities were reproduced in the Interim Report. The Bankwest victims, who reasonably claim a key role in having the Royal Commission ultimately established, are spitting chips.

The implications of this inference are disturbing. The Royal Commission thus becomes part of the problem. As I note in my submission in response to the Interim Report: ‘Do we need a Royal Commission into the Royal Commission?’.

One can see why nobody in authority wants to tackle the SME/farmer arena. Deserved compensation to victims, going back over 30 years to the onset of financial deregulation, would run into billions and billions of dollars. Leveraging those sums out of bank coffers would decimate bank coffers and capital. The sums to date mooted for victim compensation are trivial by comparison. Bank shareholders (all of us directly or indirectly) have been living a dream, with profits growing year after year since the early 1990s. It’s long past time that one looks closely under the bonnet.

Delving into the causes

As noted, Round 7 of the hearings is purportedly devoted to causes of the “misconduct” and possible policy solutions. I listed key causes in my February 2018 submission to the Commission, reproduced here:

  • comprehensive financial deregulation, on flawed premises that remain entrenched in the political sphere;
  • profound asymmetry between bank lender and SME/farmer borrower;
  • complementary corruption of the satellite sectors dependent on the bank teat (law firms, valuers, receivers, some real estate agents);
  • regulators (ASIC, APRA, RBA, the Federal Treasury) and external dispute resolution institutions (FOS, farm debt mediation) missing in action, inept or complicit; and
  • the courts are the integral part of the problem.

Rowena Orr honed in on the evident causal role of incentive-based remuneration (“short-term variable remuneration” or STVRs). The banks are addicted to it. Such remuneration has been clearly part of the problem, but this dimension (ultimately a symptom of deeper driving forces) shouldn’t dominate proceedings.

My initial submission has been comprehensively ignored. Of course, everybody has found fault with ASIC and APRA — unavoidable. But FOS has been implicitly exonerated. Worse, FOS has been reinstated unchanged into the omnibus AFCA, with its complicity with the banks unacknowledged.

Of course, the satellite sectors (and the courts) were neatly omitted from the Royal Commission’s Terms of Reference, which is why the victims want the Royal Commission extended into 2019.

But who is going to go after the banking sector’s law firms – corrupt beyond measure – and the judiciary itself? Would Commissioner Hayne rat on the “profession” that gave him his livelihood and reputation? Not on your nelly. As I have claimed, there are no satisfactory solutions until the prejudices and the complicity of the courts is addressed. And for that, we will wait until hell freezes over.

Curiously, in her opening remarks on Monday 19 November, Rowena Orr claimed that the Commission had consulted widely with experts and academics, including from overseas, on the subject at hand. Curious indeed. Jeff Morris, CBA whistleblower, then present in the gallery, has not been consulted. Denise Brailey, predatory home loan expert — ditto. And yours truly, neither. There is a class of experts who specialise in corporate crime, but it appears that none of them have been anywhere near the Royal Commission. In any case, such experts have had zero visibility in the entire saga of financial sector corruption in Australia.

Will there be dramatic changes to bank practices post-Royal Commission?

Have the banks learned their lessons? No.

Some divisions within the Big Four will be sold off, notably in “wealth management”, insurance and so forth. But there will be no revolution in culture. Apart from the rhetorical flourishes, there is no real pressure for the banks to do so.

As I claimed in my article Banks apologise for crimes: Sorry not sorry’, the likelihood is that after the Royal Commission is put to rest and some mild changes pursued by the authorities, it will be business as usual at the banks regarding borrowers of all stripes.

I have recently heard of a CBA victim from the mid-1990s, from whom the CBA appropriated his assets to the value of approximately $10 million, thus stealing the future capital gains and income earning capacity of those assets as well. Given the current seemingly sympathetic environment, this victim recently approached the CBA for a re-investigation of his case. He was rebuffed.

This is not a good look at all, Mr Comyn.

Ditto the fact that David Cohen not merely remains with the bank but is now the CBA Deputy CEO. Cohen, then Chief General Counsel, was part of the cabal responsible for the corrupt takedown of hundreds of Bankwest commercial property borrowers after CBA’s purchase of Bankwest in December 2008. Cohen was subsequently solely responsible for the defence of that takedown during several parliamentary inquiries. That Cohen should now be responsible for “core customer relations” is a joke and a disgrace.

I have also heard of a Westpac farming victim from the 1990s whose case for compensation is impeccable. He has similarly been rebuffed.

What is going on? Are the Royal Commission hearings anything other than theatre, to be reported breathlessly by the media in search of clickbait?

The CBA has had a successive series of major scandals exposed by the Fairfax press, from Storm Financial onwards. This is all in the public domain. The Commission, by its nature, is not bound by conventional “adversarial” court procedure in which admissible material is strictly constrained. The Commission’s inquisitorial character can survey the whole canvas.

In my 2012 The Dark Side of the Commonwealth Bank, I highlighted the corrupt character of the CBA since the mid-1980s. Nobody in authority has been interested. Canberra knows, of course, but Canberra has, to date, been complicit with CBA criminality.

Labor will be elected in the upcoming federal election in early 2019. Labor put a good foot forward, with the able Clare O’Neil in the front line, in its submission in response to the Interim Report (see also the report in Guardian Australia). This submission summarised the Party’s experience from select forums around the country to hear from bank victims.

This submission is excellent. It hones in on experiences marginalised to date by the Commission. The evidence was acquired with minimum fuss.

Will Labor keep its foot down on banking sector corruption once elected? Cowardice in Canberra is legendary, so bank victims have to keep up the pressure.

Dr Evan Jones is a retired political economist.

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