‘This is the new environment we’re in’: Nightmare week for banks sparks dividend fears
As National Australia Bank chief executive Ross McEwan prepared to front shareholders at the company’s annual general meeting in Sydney this week, he could have been forgiven for expecting a relatively easy run.
His counterparts at Westpac went through the same ritual in the very same venue, the International Convention Centre, just six days prior. And for that bank – reeling from one of the worst corporate crises in Australian history – it wasn’t pretty.
But on the evening before McEwan’s first major speech in his new job, the corporate cop dropped a bombshell on NAB.
In a concise statement lodged with the Federal Court on Wednesday evening, the Australian Securities and Investments Commission (ASIC) accused NAB of breaking the law more than 12,000 times for charging customers fees despite not providing any services and for providing dodgy fee disclosure statements.
It was a chilling reminder for Australia’s most senior bankers that if they had been hoping to wind down the year without a fuss, they were sorely mistaken.
The financial regulators have fired off a combined total of five press releases every day this week and the scandals show no sign of letting up. As the decade comes to a close, analysts, investors and shareholders fear the drama-plagued sector might be hit with another year of disappointing returns.
I don’t know the future. I can’t promise you there won’t be surprises.ANZ chairman David Gonski
“It doesn’t feel tactically a good environment to be in at the moment,” says respected banking analyst Brian Johnson from Jefferies.
NAB is now facing a massive fine that could theoretically reach close to $10 billion. McEwan said he took the allegations seriously and promised to work with the regulator to get through it. He told senior executives to “fear me” and acknowledged clawing back trust from customers was no small feat.
In a separate matter, the country’s oldest bank was ordered to pay $9.15 million after losing a lawsuit brought by the corporate cop over one of its financial planners, Sudhir Sinha, who gave dodgy advice to four couples in Perth in 2013 and 2014.
Hartzer’s successor authorised two full-page ads to be printed in all major newspapers last week, apologising once again and outlining the bank’s progress. But Jefferies’ Johnson says it would be naive to think the bank’s woes were anywhere near over.
“We have no idea how big the AUSTRAC fine could be, ASIC might also seek a fine,” he says. “The whole issue comes down to uncertainty.”
Along with NAB, ANZ also had its annual general meeting this week in Brisbane. Like NAB and Westpac’s, it was a drawn-out affair and crammed with hostile shareholders.
ANZ avoided a second strike but chairman David Gonski faced a lengthy spate of questioning as skittish shareholders tried to ascertain if their lender was on the brink of a Westpac-style AUSTRAC scandal.
“I don’t know the future,” Gonski said this week. “I can’t promise you there won’t be surprises.”
Seven days after AUSTRAC lodged its 47-page statement of claim detailing Westpac’s alleged 23 million breaches of anti-money laundering and counter-terrorism financing laws, some linked to child exploitation in the Philippines, ANZ declared it too was working with the regulator.
On Wednesday, ANZ chief executive Shayne Elliott said the bank had not identified any material issues related to this investigation.
But Johnson argues this should be taken with a grain of salt. “I don’t think anyone really knows what AUSTRAC knows,” he says.
The chairman also spoke of the challenging year faced by the bank, as profits were undermined by sluggish loan growth, fierce competition and high payouts to done-over customers.
It has been a disappointing year for bank shareholders across the board. Westpac and NAB both cut dividends, ANZ cut its franking credits. Capital is thin and further raising could dilute share prices, says Johnson. “When you put that together, it feels like what we’re really talking about is dividend risk.”
Commonwealth Bank, the country’s largest bank, has been the standout of the bunch. Having already been hit with its own money-laundering fine last year ($700 million), the share price has remained stable and even saw growth.
Hugh Dive, chief investment officer at index-weighted Atlas Funds Management, says it’s a tough time to be investing in banks.
“There are a range of issues,” Dive says, adding the regulatory environment has changed.
“The regulator will throw the banks to the press rather than sort things out behind closed doors as they have done in the last 15 years.
“This is further evidence that this is the new environment we’re in.”
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