The National Australia Bank is in the gun following the release of the final report from the royal commission yesterday which contained very sharp criticism of the bank’s chairman and CEO from Commissioner Ken Hayne.
The bank’s chair and CEO were singled out by Commissioner Hayne for very critical comments, while the bank is also on the list of financial groups being referred to regulators for possible legal action.
The final report of the royal commission made 24 referrals for misconduct involving potential civil and criminal penalties for big names including the Commonwealth Bank, NAB, AMP, and ANZ.
Westpac is the only bank not in that group so its shares are likely to rise today after weakening sharply in recent days.
The Commonwealth’s shares should be watched – it escaped the final report relatively lightly – or rather its newish CEO, Matt Comyn did. The bank is still on the list of referrals for possible legal action by regulators. It reveals its interim profit tomorrow morning.
The big four’s shares ended the day higher yesterday on the ASX ahead of the release of the report. Westpac was up 1.2% to $24.87, Commonwealth Bank rose 0.8% to $70.30, ANZ was up 1.2% to $25.22 and NAB climbed 1% to $24.03.
Commonwealth Bank shares fell 3.8% last week, NAB shares were also off 3.8%, ANZ shares lost 4.8% while Westpac was the biggest loser, dropping 5.0% (Some of these falls were also driven by fears about the impact of falling house prices).
AMP shares lost 4.2%, IOOF (which could be a very big loser from the report – as big a loser as the AMP) saw its shares slide 4.5%.
The finance sector overall was up nearly 1% yesterday against a broader market rise of half a percent across the wider market.
It was wealth management companies like AMP and IOOF that were punished yesterday, falling 1.3% and 4.5% respectively.
Freedom Insurance Group shares doubled from 0.1 of a cent to 0.2 of a cent – but the company’s business model of cold calling possible clients will be outlawed.
Only Westpac escapes Commissioner Kenneth Hayne’s calls for referrals over the breaches.
The report is also set to spark an immediate shake-up of Australia’s mortgage broking industry by banning trailing commissions and ensure brokers’ responsibility is to the homeowner, not the bank.
But some of those changes in the way commissions and some fees are paid won’t change for a year to 18 months.
But more so than any other bank or financial group, the final report casts considerable doubt on the continuation of NAB chair, Ken Henry and CEO Andrew Thorburn.
“Having heard from both the CEO, Mr. Thorburn, and the chair, Dr. Henry, I am not as confident as I would wish to be that the lessons of the past have been learned,” Commissioner Hayne said.
“More particularly, I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly,” he said.
Commissioner Hayne gave Dr. Henry singled out Dr. Henry for especially sharp comment following his evidence at the royal commission which was largely regarded as dismissive.
“I thought it telling that Dr. Henry seemed unwilling to accept any criticism of how the board had dealt with some issues,” Commissioner Hayne.
He also pointed to Mr. Thorburn’s reluctance to accept the bank’s active role in charging fees for no service.
“I thought it telling that Mr. Thorburn treated all issues of fees for no service as nothing more than carelessness combined with system deficiencies when the total amount to be repaid by NAB and NULIS on this account is likely to be more than $100 million,” he said.
“ I thought it telling that in the very week that NAB’s CEO and chair were to give evidence before the commission, one of its staff should be emailing bankers urging them to sell at least five mortgages each before Christmas.”
“Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains,” Mr. Hayne said in his report.
With these comments and the record strike vote on executive pay at the NAB’s 2018 annual meeting late last year, it is hard to see the duo lasting at the top of one of the country’s big four banks.
In the wake of an 88% ‘no’ vote against the remuneration report, the NAB vowed to tear up its executive pay structure.
NAB chairman Ken Henry told the bank’s annual general meeting in Melbourne that the bank had got it wrong in terms of remuneration.
Based on Mr. Hayne’s comments, Dr. Henry won’t be addressing the 2019 annual meeting later this year.
