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BFCSA: Why the BANKS Should Be NERVOUS about Election 2016 - Ian Verrender

Posted by on in ROYAL COMMISSION URGENT
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Why the banks should be nervous about Election 2016 

The Drum
Ian Verrender  5 hrs ago
 
 

With the election campaign now in full swing, it seems almost everyone has forgotten the reason we are going to the polls.

During the past fortnight, as political opponents play Punch and Judy each night on the tele, there's been nary a mention of the ABCC - the Australian Building and Construction Commission - the immediate establishment of which was so vital, it required the Prime Minister to dissolve both houses of Parliament.

It's easy to see why.

Cranes jostle for position on crowded city skylines as the frenzied east coast construction boom races towards its inevitable climax. Industrial disputes have fallen to levels last seen six years ago at the height of the financial crisis. And wages are growing at their slowest since records were established in 1998, arguably at their slowest since the last recession 25 years ago.

So there you have it; problem solved. Time to consign it to the vaults and forget it was ever mentioned.

Speaking of vaults, the issue threatening to flare up again as election day draws closer is that of the growing scandal surrounding the finance sector and the debate over whether to hold a royal commission.

It's a prospect that is scaring the pants off those in charge of our major institutions, where plans are being hatched to quietly counter the growing momentum sweeping through the community.

As if the Coalition didn't need any further spanners being thrown into the campaign works, during the past fortnight the corporate regulator has been regularly dropping juicy excerpts of its evidence in its looming case against Westpac and ANZ.

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison have been at pains to talk up the abilities of the Australian Securities and Investments Commission and the powers they wield as part of the argument to bat away calls for a full blown inquiry.

It's unlikely, however, they would be keen for too much detail to drop just now.

The technical details of rate market rigging might leave ordinary souls bewildered. But even the financially unsophisticated understand when they've been conned, especially when it is being performed by a bunch of testosterone fuelled vulgarians.

While ASIC for once is on the front foot, each revelation merely adds weight to the arguments of those calling for a royal commission.

Hard to believe, but the rate rigging scandal threatens to trivialise the atrocious behaviour of the banks towards their retail customers; the overcharging, the false documentation, even the financial planning and insurance scams.

Every Australian has paid for the rate rigging. Every business and every bank customer has been gouged on their loans in order to help prop up bank earnings as they played juvenile games of brinkmanship against the other.

Just as they successfully banded together two and a half years ago to unwind legislative reforms - Future of Financial Advice - aimed at curbing some of those excesses, they once again are engaged in some deft political manoeuvres.

The chairmen and senior executives of all four major banks must be petrified that the public may learn the true extent of the profits made through the alleged rigging of interest rates.

For some institutions, the ill-gotten gains amounted to hundreds of millions of dollars a year. And the problem for each of the banks is that for years the market rigging was considered "standard practice".

It's not just ASIC's case that has them on edge. For they can stonewall on that for years.

The real wildcard comes from ANZ's senior trader, Etienne Alexiou, who is suing his former employer for unfair dismissal, demanding $30 million in damages. As head trader, he was regularly paid $5 million bonuses. And you only get that kind of cash as a bonus if you are generating earnings many multiples more.

Alexiou has persisted with the case despite an onslaught from his former employer to blacken his reputation. It spent the best part of a year trawling through all its records, not to mount a defence, but to gather a store of incriminating personal information against its once star trader.

It didn't have to dig too deeply into the reservoir of recorded phone calls and communications. Messages to workmates and traders at other institutions with offensive comments about almost everything you could care to mention have been released. Sexist and homophobic comments, drug references, even a boast about a sexual encounter while he was at university.

When he pushed ahead with his case, the bank opened its dirt file.

Clearly, the ANZ didn't consider his behaviour a problem when he was contributing vast profits and it didn't become one until the corporate regulator was forced to launch an investigation into the rigging.

The only reason a probe began here was that rampant market rigging had been unveiled in London and New York.

In London, Deutsche Bank was fined $2.5 billion for its role in manipulating the interest rate market while UBS copped a $1.5 billion penalty. Barclays wore a $350 million fine and its chief executive was forced to stand aside.

So far here, four banks have admitted to "potential misconduct". In a laughable development, the Royal Bank of Scotland, UBS and BNP Paribus have each paid fines of less than $1.6 million.

Actually, that's not entirely correct. The payments technically were not fines. They were, in fact, "voluntary contributions to financial literacy programs" and there were no admissions of guilt. I kid you not.

In fending off claims for a full blown inquiry into the bank behaviour, the Prime Minister and Treasurer have deferred to ASIC's sweeping powers, arguing it has all the legal arsenal of a royal commission and then some.

That may be true. But the unfortunate fact is that ASIC's record as an enforcement agency is abysmal. The rot set in 15 years ago when it began shying away from criminal prosecutions, in favour of civil actions. It argued back then that civil cases required a lower threshold of evidence.

In the intervening years, it has moved to "enforceable undertakings", where a guilty party merely had to agree to not break the same law again. Since the financial crisis, it largely abandoned enforcement, preferring aggrieved parties launch class actions which essentially forced victims to take the law into their own hands.

Should ASIC fail to win a conviction against Westpac or ANZ - and if history is any guide that is a distinct possibility - it will be more than just another chapter of corporate malfeasance that will be swept under the carpet.

The banking and finance sector is the biggest donor to our political parties, donating more than $1.2 million to both sides of politics in 2014. They don't do that out of a love for democracy.

They also were the recipients of the largest taxpayer funded support program in history. When financial markets tanked in 2008, taxpayers rode to the rescue, extending a $120 billion lifeline via the Commonwealth's triple-A credit rating, so they could refinance their offshore loans. Without that, Australia's banking system would have failed.

There was a brief period of contrition that followed the bailout. Then it was business as usual, complete with the mega salaries that only grew bigger as the atrocities grew ever more obvious and a rewriting of history that glazed over the entire episode.

Pulling through the rate rigging scandal will require a Herculean effort and a great deal of luck. The political favours have been called in and the legal muscle employed.

If only there was some kind of diversion.

 

 

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