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BFCSA: More Banker historical horrors in self reg chaos - John MacFarlane ANZ, Opes Trio et al

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Friday, 17 July 2009

Former ANZ boss seeks redemption, fails

by Adam Schwab


It is always a difficult task to prepare one’s own eulogy. Such was the predicament faced by former ANZ CEO, John McFarlane last week, when he penned a defence of his achievements as head of Australia’s fourth largest bank.  After maintaining a dignified silence in recent years, McFarlane launched a valiant rearguard action in Business Spectator last week, claiming:

By 2007, ANZ was the leading bank globally in the Fortune Global 500 for leadership; the leading bank globally in the Dow Jones Sustainability Index; had the highest staff engagement of all the major companies in Australia; had the leading retail banking customer satisfaction of the major banks; and was rebuilding a sustainable presence and capability in Asia through partnership investments, organic growth, and recruiting experienced Asian executives like Alex Thursby.

There is no doubt that certain cultural aspects of ANZ improved during McFarlane’s tenure, however, overall, in recent years ANZ found itself in the worst position of the Big Four banks and much of that blame must be borne, even unfairly, by the CEO.

Of McFarlane’s achievements, the bank’s Asian expansion has certainly not so far, been a success. As Eric Johnson pointed out in Fairfax earlier this year:  ANZ has been the most aggressive Australian bank in building its Asian business, but most of the expansion has been through piecemeal acquisitions over the past decade.  Its biggest Asian investment by asset value is a 19 per cent stake in Malaysia’s AMMB Holdings, that nation’s fifth-biggest bank. The stake was valued at $999 million at the end of September, but following falls in AMMB’s shares the market value of ANZ’s holding has dropped to $532 million.

Elsewhere, ANZ has booked its 18 per cent stake in Vietnam’s Saigon Securities at $150 million. But shares in the investment bank have slumped more than 40 per cent since ANZ ruled off its accounts in September, taking Saigon’s total market value to about $330 million.

As for topping the Fortune Global 500 for leadership, it should be remembered that the very same publication deemed Enron America’s “Most Innovative company” for six years straight, with the run only halted by the company’s bankruptcy. Similarly being regarded as having the highest customer satisfaction of the Australian banks must rate alongside being the friendliest prisoner in Pentridge’s H-Division.................

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Wednesday, 3 June 2009

Foolhardy ANZ CEO enters fray on executive pay

by Adam Schwab


When one operates an illicit or somewhat immoral business they are usually well advised that publicity is not their friend. The mob, narcotics dealers or moonshine liquor sellers are well aware of this fact, preferring to conduct their business quietly, avoiding public comments. One would think therefore that the millionaire CEO of an institution whose earnings are underpinned by taxpayer backing and legally dubious penalty fees would be advised to avoid debates such as those concerning executive pay.  Alas, ANZ’s bombastic chief, Mike Smith, is not concerned about appearances, criticising recent “bank bashing” and “irrational and uninformed debates” regarding executive remuneration. Smith last week made the keen observation that “when you compare salaries to the US or to Europe, Australia is actually well positioned.”

Perhaps Smith was speaking from the point of view of an executive who was last year paid almost $13 million to run a bank whose share price slumped by almost 50% since October 2007, rather than the point of view of shareholders. In fact, Australian banking executives have, in recent times, been very well paid, even compared to their trans-Pacific rivals...................Smith himself received a $9 million “sign-on” bonus when he joined ANZ from HSBC in October 2007. The money was paid to compensate Smith for salary he would have received at HSBC. Exactly why the ANZ board weren’t able to locate an executive who didn’t require a $9 million dowry is unclear. Of course, when it comes to selecting executives, the ANZ board has not exactly covered itself in glory.

ANZ’s immediate past CEO, John McFarlane, was paid more than $26 million during his last four years as ANZ head, but conceded he had never heard of Opes Prime. ANZ’s exposure to Opes margin lending business is likely to cost is several hundred million dollars and tarnished the bank’s already shaky reputation. During McFarlane’s reign ANZ also accumulated a $500 million (unsecured) exposure to Centro, a $150 million exposure to collapsed US lender Countrywide and a $226 million exposure to monoline insurer, ACA Capital (as well as exposures to Hedley Lesiure, Pubboy and Tricom). Fortunately for McFarlane, ANZ’s woeful performance did not prevent him from receiving 95 percent of his potential short-term bonus in 2007 (totaling $2.09 million).

Smith did not only defend executive largesse, also taking aim at those spoilsports who dared criticise the competition, or lack thereof, in Australia’s financial sector. Smith stated last week that “this whole issue of ‘are banks being competitive’ is crazy. People have a choice.” Perhaps Smith was referring to the choice between the various big four banks who all failed to pass on the Reserve Bank’s most recent interest rate cut in full. Or maybe Smith was speaking of the competition between the big four whom appear to be competing as to which can charge customers the highest level of penalty fees, despite their apparent illegality under basic common law principles.

Smith did note however, that ‘in his experience’, bank competition is strong. He is probably right in a sense  — banks are fairly competitive about obtaining clients who earn upwards of $10 million a year. It is usually those pesky pensioners, single mothers and the unemployed who tend to find things a bit more difficult dealing with the allegedly competitive banking sector.



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