Senior Counsel Assisting Rowena Orr QC, flanked by junior barristers Albert Dinelli and Eloise Dias. Orr swiftly earned a reputation for demolishing witnesses and for her mastery of the detailed and complex evidence. (Eddie Jim/Fairfax Media)
AMP senior executive Jack Regan on his way to appear before the royal commission on 17 April 2018. Under intense questioning from Michael Hodge QC, Regan was unable to recall exactly how many times AMP had lied to ASIC. (Joe Castro/AAP)
NAB executive Andrew Hagger.
Senior Counsel Assisting Michael Hodge QC. On 13 August, Hodge took Hagger to task over NAB’s disregard for the law and ASIC. Hagger resigned a month later. (Darrian Traynor/Fairfax Media; David Geraghty/AAP, The Australian Pool)
NAB boss Andrew Thorburn leaving the royal commission on 26 November 2018 after a gruelling day in the witness box. He had admitted that NAB had become more focused on profits and short-term gains than the interests of its customers. (David Geraghty/Newspix)
During the seventh round of public hearings, the chair of CBA, Catherine Livingstone, was grilled about a range of scandals affecting the bank, as well as the CBA board’s decision to allow senior executives to receive their full bonuses. (Louise Kennerley/Fairfax Media)
Stern-faced Kenneth Hayne delivered his final report to nervous-looking Treasurer Josh Frydenberg on 1 February 2019. The photo opportunity became excruciating when Hayne refused to shake hands with Frydenberg. (Kym Smith/AAP, Fairfax Media Pool)
Ken Henry gave an extraordinary performance at the royal commission, scoffing at questions and muttering under his breath. Days after the publication of Hayne’s scathing final report, he agreed to resign. (Dominic Lorimer/Fairfax Media)
Acknowledgements
‘Sometimes people don’t want to hear the truth because they don’t want their illusions destroyed.’ Friedrich Nietzsche
In my coverage of the Australian financial services sector, many illusions were destroyed. The blind belief that the banks were ethical and trustworthy was the biggest illusion. When Malcolm Turnbull ‘reluctantly’ called a royal commission, there was nowhere to hide.
My role in telling this story was made possible by many incredible and brave people. Their sacrifices may have seemed almost futile in the face of the biggest corporations in Australia, but they fought on regardless. They are the whistleblowers, journalists, victims and politicians to whom we should all be hugely grateful.
A special thanks to Jeff Morris, Dr Ben Koh and the many anonymous whistleblowers who had something important in common: a sense of justice that would never be tempered – a quality that led them to reveal unconscionable conduct.
To the many bank victims who fought back and spoke out, I owe you my deepest gratitude: Merilyn Swan, Jan Braund, Veronica Coulston, Teghan Couper, James Kessel, Naomi Halpern and Bob Nissen, to name a few.
Thanks to the politicians who fought for a royal commission before the idea became popular, including Peter Whish-Wilson, Mark Bishop, Sam Dastyari and, especially, Wacka Williams.
Writing a book on a topic as big as this one, with a history spanning almost forty years, meant dealing with sources and events outside my own journalistic experience, and I acknowledge that I have stood on the shoulders of many journalists and mavericks, including Anne Lampe, Judith Hoare, Pamela Williams, John McLennan and Paul McLean.
I would like to thank the journalists I worked with on various bank exposés over the years, including Chris Vedelago, Ben Butler, Ruth Williams, Sarah Danckert, Mario Christodoulou and Klaus Toft.
Thanks also to those talented individuals who reported on the royal commission and who did such a great job unpicking the testimonies and prevarications of the witnesses and keeping the subject on the front pages of newspapers, TV and radio news bulletins, and websites for a year. James Thomson, your commentary was outstanding.
Writing and researching this book was a gigantic project. My heartfelt thanks to my dear friend Ruth Williams, whose meticulous eye, insights and encouragement helped shape this book.
I would also like to pay homage to Malcolm Hughes for his tireless work and belief in the project.
Many thanks to Brett Le Mesurier for his financial expertise – and humour – and to John Berrill for his patience and passion in explaining complex legal issues and life insurance policies.
A special thanks to the staff at the The Age and the Sydney Morning Herald, especially the business editor, Mat Dunckley, and the group executive editor of Australian metro publishing, James Chessell, for their encouragement and support and their preparedness to back the stories and give me time off to write the book. I couldn’t have done this without them. Thanks also to the Four Corners team, including Marian Wilkinson, Sue Spencer, Sally Neighbour and Morag Ramsay.
Thanks to Michael Fraser, Maddison Johnstone and Angela Cipri for their contributions and also to my literary agent, Fiona Inglis.
I would also like to thank the HarperCollins team, notably Mary Rennie and Scott Forbes, whose editing, hard work and professionalism have been second to none.
Finally, I would like to thank my wonderful family for encouraging me to write the book and spurring me to keep going – no matter what: my beautiful daughter, Emma, whose star will always shine bright; my incredible husband, Christian Townsend, who is my rock; and my dad, Tom Ferguson, for being my biggest fan.
Banking Bad is living proof of that old adage that evil can only prosper when good people fail to act.
Glossary of terms
ACCC: The Australian Competition and Consumer Commission is the consumer and competition watchdog. It promotes competition and fair trading.
APRA: The Australian Prudential Regulation Authority is the prudential regulator set up to supervise financial institutions, including banks, to ensure financial stability.
ASIC: The Australian Securities and Investments Commission is the corporate regulator set up to enforce and regulate the law to protect Australian consumers, investors and creditors.
ASX: The Australian Securities Exchange is the country’s primary securities exchange.
AUSTRAC: The Australian Transaction Reports and Analysis Centre monitors financial transactions to identify and act against money-laundering by organised crime and terror groups.
Bancassurance: The manufacture and sale of insurance and other financial products such as super funds by banking institutions.
Bank credit: Money that banks lend to customers.
Basis points: The percentage change in the value of a financial instrument such as an interest rate. One basis point is equivalent to 0.01 per cent.
Big four banks: Australia’s four largest banks: CBA, ANZ, NAB and Westpac.
Breach report: A report filed to the regulator by an institution advising the regulator of a breach of the law, including misconduct, by the institution or its staff.
Capability review: A company-wide review of an organisation’s ability to meet future objectives, obligations and challenges.
Continuous disclosure (obligation): Any company listed on the ASX has an obligation to continuously disclose information which may have a material effect on its share price.
Current account deficit: The measurement of a country’s trade overseas where goods and services imported exceeds the value of goods and services exported.
Enforceable undertaking: When misconduct occurs, an entity can enter an enforceable undertaking with the relevant regulator to make changes, as an alternative to civil or administrative action.
FoFA: Future of Financial Advice legislation was introduced by the Labor Government in June 2013 to ban the payment of upfront commissions and trailing commissions on all new financial products, excluding life insurance, to remove conflicts of interest.
Foreign currency loans: Loans, often in the form of mortgages, with interest and principal repayments denominated in a currency other than the currency of the country in which the borrower is a resident.
Forex (foreign exchange): The exchange of one currency
for another.
Four pillars: A policy introduced by Treasurer Paul Keating in 1990 to stop the big four banks merging.
Frontrunning: The most immediate form of insider trading, frontrunning occurs when an investor steps in front of a large order to gain an advantage in the price.
Grandfathered commissions: Commissions and fees paid on products sold before June 2013.
Hedging: A strategy to reduce the risk of a negative price movement on financial markets.
Industry super fund: A not-for-profit super fund, often affiliated with the relevant industry’s union.
Margin call: A request from the provider of a margin loan to the borrower to add funds to the original investment, normally triggered by the value of the investment falling below a certain amount (known as the loan to valuation ratio).
Margin loan: A loan used for the specific purpose of investing in approved shares or managed funds, where the shares or managed funds are used as security for the loan.
Mortgage funds: Funds that invest in mortgages that are secured by properties.
Regulator: One of the agencies responsible for enforcing financial services, corporations, competition and/or anti-money-laundering laws.
Retail super funds: For-profit superannuation funds which are largely managed by financial institutions, including banks and insurance companies.
Return on equity: A key measure used by investors to gauge how effectively management is using a company’s assets to create profits.
Securities loan: A loan backed by a listed asset such as a share.
Significant breach: A breach of the law made by a company. By law, the company has to report a breach, or likely breach, to ASIC within ten business days of becoming aware of it.
SoFA The Scrutiny of Financial Advice inquiry set up by the Senate Economics References Committee in September 2014 to inquire and report on the financial advice reforms introduced under FoFA.
Statement of advice: A document given to a customer by a financial planner which sets out the financial products that have been recommended to a customer, and on what basis. It must also include the date the advice was given and any payments the adviser or licensee will receive.
Tailored business loan: A business loan that has an embedded interest rate hedge. When interest rates fell after the Global Financial Crisis, these products – often targeted at small businesses – started to unravel and blew out interest rates.
Vertical integration: The ownership or control of several components of the wealth management chain by a bank or financial institution. For example, the ownership of financial advice, asset management, life insurance and superannuation entities by one company.
Wealth management: Incorporates financial planning, financial advice and related investment products, such as life insurance and superannuation.
Endnotes
Unless otherwise indicated, all quotes in the text are from interviews conducted by the author for this book.
Prologue
1Australian Banking Association press conference, Anna Bligh responds to the release of the banking royal commission’s interim report, 28 September 2018.
2Janine Perrett, ‘Opinion: Banking royal commission uncovers more than a few bad apples’, Courier Mail, 28 April 2018, p.34.
PART 1 – WHAT GOES ON IN THE SHADOWS
Chapter 1: Caught in a trap
1Bob Hawke, 1983 federal election speech, Sydney, 16 February 1983.
2Paul Kelly, The March of Patriots, University of Melbourne Press, Melbourne, 2009, p.4.
3Gareth Boreham, ‘Borrowers knew the risk, says Westpac’, The Age, 23 May 1991, p.6.
4Anne Lampe, ‘Farmer thought bank “got” witness’, Sydney Morning Herald, 21 May 1998, p.29.
5Williams & Others v Commonwealth Bank of Australia [1999] NSWCA 345.
6Anne Lampe, ‘Lender gets a franc reappraisal from Court of Appeal’, Sydney Morning Herald, 28 September 1999, p.34.
7John McLennan, Bankers, Bastards and other Unarmed Bandits, unpublished memoir, p.14.
8Ibid, p.4
9Paul McLean, Bankers and Bastards, Hudson, Hawthorn, 1992, p.4.
10Ibid, pp.37–50.
11Quentin Dempster, Whistleblowers, ABC Books, 1997, p.24.
12Ibid, p.32.
13Max Walsh, ‘The Westpac Letters: Reasons behind the fight to prevent publication’, Sydney Morning Herald, 11 March 1991, p.17.
14Mark Beyer and Sarah Mills, ‘Martin cautious on bank attacks’, Financial Review, 19 March 1991, p.40.
15Paul Cleary, ‘Claims of fraud dismissed’, Sydney Morning Herald, 19 March 1991, p.25.
16Ibid, p.viii.
Chapter 2: Diversify or perish
1Kerry O’Brien, Keating, Allen & Unwin, Sydney, 2015, p.322.
2Ibid, p.323.
3Simon Lloyd, ‘Which bank has a new identity?’, Financial Review, 2 September 1991, p.39.
4Roger Hogan, ‘Commonwealth result encourages sale plans’, BRW, 8 September 1993, p.28.
5Sue Neales, ‘Bank facing revolt over country cuts’, The Age, 7 January 1994, p.3.
6John Quiggin, ‘The “People’s Bank”: the privatisation of the Commonwealth Bank and the case for a new publicly owned bank’, Australian Options, 30 March 2001, p.3.
Chapter 3: A soft touch
1Virginia Trioli, ‘ASC lists achievements of its first year’s work’, The Age, 20 December 1991, p.18.
2Anne Lampe, ‘Corporate fighters may clash’, Sydney Morning Herald, 9 March 1992, p.21.
3David Walker, ‘A slanging match worth watching rouses a laid-back Duffy’, The Age, 11 September 1992, p.19.
4Tony Kaye, ‘Banks facing revenue, profits crunch: Argus’, Financial Review, 17 June 1993, p.38.
5Denise Cullen, ‘Are you being served?’, Sydney Morning Herald, 24 July 2000, p.7.
6Sean Aylmer, ‘Banks try to restore reputation’, The Age, 3 August 1998, p.21.
7Alan Kohler, ‘The men who would eat each other’, Financial Review, 12 September 1998, p.12.
Chapter 4: Bigger is better?
1Anthony Hughes and Kate Askew, ‘Tempting the trident’, Sydney Morning Herald, 11 March 2000, p.1.
2Mark Westfield, ‘Hand over fist’, The Australian, 11 March 2000, p.31.
3Tim Boreham, ‘The Mega bank “good for the nation”: Jobs to go, but chief defends deal’, The Australian, 11 March 2000, p. 25.
4‘The Cohen Brown Rule’, document supplied to author by Marty Cohen.
5Andrew J. Macey, ‘When incentives go wrong’, LinkedIn, 7 August, 2017; www.linkedin.com/pulse/when-incentives-go-wrong-andrew-j-macey/.
6Cohen Brown, Onebankism; see https://web.archive.org/web/20030603194724/http://www.cohenbrown.com:80/promotional.htm.
7AAP, ‘Banker gets five years for $19m theft’, Financial Review, 30 October 2003, p.20.
8Anonymous email to author, 24 June 2013.
9James Kirby, ‘Which Bank? Why morale at the Commonwealth Bank is sinking’, BRW, July 2004.
10CBA Annual Report, 2005, p.4.
11O’Brien, p.332.
12Commonwealth Bank, Ralph Norris profile; www.commbank.com.au/about-us/shareholders/pdfs/2005-asx/140605-Ralph-Norris-bio.pdf.
13Michael Sainsbury, ‘Marty Cohen: the man behind CBA’s sales culture unveiled’, Michael West.com.au, 11 May 2018.
Chapter 5: Giving with one hand . . .
1Duncan Hughes, ‘How CBA stepped up for Storm Financial’, Financial Review, 11 June 2009, p.1.
2Adele Ferguson, ‘Easy lending raises hard questions’, The Australian, 31 January 2008, p.1.
3Adele Ferguson, ‘Ex-gang boss takes Opes hunt abroad’, The Australian, 8 April 2008, p.1.
4Adele Ferguson, ‘Macquarie in the spotlight amid $5bn refinancing fears’, The Australian, 17 September 2008, p.38.
5ASIC media release 08–202, ‘Enquiries into market manipulation’, 17 September 2008.
6Quoted in Stephen Lunn, ‘Crikey, website changes its spots’, The
Australian, 19 September 2008, p.3.
7Greg Baxter, ‘Adele Ferguson deserves an apology: News Ltd’, Crikey, 19 September 2008.
8Quoted in Lunn, ‘Crikey, website changes its spots’.
9Stephen Mayne, ‘Fur flies over Macquarie analyst coverage’, 2 February 2010; www.maynereport.com/articles/2008/09/19-1059-7237.html.
10Mark Hawthorne, ‘ASIC in rumour raids’, The Age, 14 January 2009, p.24.
11Senate Debates, Senator John Williams’ speech ‘Matters of Public Interest: Storm Financial Ltd’, 25 November 2009; www.openaustralia.org.au/senate/?id=2009-11-25.33.
12ASIC media release, ‘Directors of Storm Financial penalised for breach of duties’, 22 March 2018.
13Tony Raggatt, ‘Storm Financial heading back to court to appeal judgment’, Townsville Bulletin, 25 April 2018.
Chapter 6: Profit before people
1ASIC letter to Tim Gunning, General Manager, Wealth Management Commonwealth Financial Planning and Financial Wisdom – surveillance findings from Darren Williams, director compliance financial services at ASIC, 29 February 2008.
2Adele Ferguson, ‘ASIC process in need of change’, The Age, 11 June 2013, p.28.
3Economics Legislation Committee, Senate Estimates, 4 June 2013.
Chapter 7: ‘Banking Bad’
1Adele Ferguson and Sarah Danckert, ‘Committee hears of CBA’s $8.2 billion “fraud”’, The Age, 13 November 2015, p.23.
2John Durie, ‘Pointless inquiry’, The Australian, 21 June 2013, p.28.
3Adele Ferguson, joint ABC/Fairfax investigation, ‘Banking Bad’, Four Corners, 5 May 2014, www.abc.net.au/4corners/banking-bad/5433156 (for replay and transcript).
4Adele Ferguson and Mario Christodoulou, ‘Rollo Sherriff and Meridien Wealth: How a rock-solid institution backed impenitent maverick’, Sydney Morning Herald, 3 May 2014, p.1.
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