“You grow up thinking a criminal looks like a beagle boy in cartoons but in reality, they are over 40, wear a suit, and live on the North Shore. It is human nature that there are some serious people who, if temptation is in front of them, cannot resist and will ignore the effect on others…” So says Bob Nissan, a customer of Meridien Wealth, an authorised representative of Financial Wisdom, in turn, owned by CBA, in Adele Ferguson’s new book, Banking Bad.
It’s a classic tale of villains, victims, and heroes. Greedy bankers, brainwashed salespeople, exploited innocents, and a brave few who broke away to flip the Monopoly board off the table. Banking Bad is the eloquently relayed story of Gold Walkley Award-winning journalist Adele Ferguson’s work to expose systematic malfeasance and moral and legal corruption within Australia’s banks and insurers, which resulted directly in the Hayne Royal Commission.
Banking Bad has three themes: financial sector ambition, regulator complicity in that ambition, and whistleblowing of the sector. The book is arranged in two parts: ‘What we do in the shadows’ and ‘A blast of sunlight’.
‘What we do in the shadows’ is a chronological relating of the financial sector’s switch in strategy from minders of the public’s money and funders of initiatives pre-1981, to, post-1981 and up to today, sellers of banking products and miners of money, aided by light-touch regulatory oversight.
In the early 1980s, financial services deregulation and national-assets privatisation reoriented the banks and insurers into prioritising shareholder-dividend maximisation over everything else. Introverted staff were shown the door, replaced with the more mercenary type of extrovert under a new banking ethos of ‘sell, sell, SELL!’. “Targets and incentives were introduced which changed the culture overnight”, with the Cohen Brown sales method imported from the US to be drummed relentlessly into banking staff until they were no longer “brown cardigans” in the service of the public but sharp suits committed to going after mums and dads for ‘vertical integration’ — which means having nanna purchase every single add-on, adjunct, and complementary financial product possible to the one she rang to enquire about.
This resulted in the 35-years-and-counting seduction of Joe and Josephine Public into taking out loans of four times the amount they had applied for, agreeing to sophisticated margin call loans and foreign currency investments, and buying all types of commission-driven insurance for their health, assets, and debt. “The ‘people’s bank’ was fast becoming a relic. A relic from a bygone age.” Shareholder value had become the banks’ only goal.
In Part 1 of Banking Bad, Ferguson weaves smoothly and professionally through four decades of banks and insurers putting “profit before people”, matter-of-factly outlining key examples of each of CBA, NAB, Westpac, ANZ’s (and more) tactics — legal and illegal — for dividend optimisation. Also given chapters are ASIC, APRA, and the ABA for the calibre of their efforts in keeping the banks and insurers’ competitive instincts legally and ethically sound. By the end of Part 1, you’ll have a clear understanding of how the finance sector’s sales strategies exploited the general retail banking public for their financial system naivety, all the while enabled by active regulatory disengagement.
Interspersed throughout both parts are the whistleblowing stories of the various people and parties — both bank insiders and ‘civilian’ targets of banks’ bad faith and illegality — many of which became testimony during Hayne’s Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry. The stories are of corporate deception, distortion, recalcitrance, and denial of legitimate claims. Ferguson writes that ASIC only began to take the banks’ profiteering seriously after its PR debacle resulting from her 2014 Four Corners program. Even so, old habits were proving hard to break: In a 2016 review of IOOF misconduct, “ASIC failed to fine, sanction or ban IOOF, instigate legal action against the company, amend its license conditions or even enter an enforceable undertaking with it.” It was well and truly time for a royal commission into Australia’s banking and insurance practices.
‘A blast of sunlight’ — Part 2 of Banking Bad — is a macro recount of the big moments of the Hayne Royal Commission. It will be excruciating reading for bank, insurer, and regulator communications staff. Ferguson directly quotes their senior leaders’ admissions to shocking misconduct, which included forging clients’ signatures, failing to provide essential documents, and giving inappropriate recommendations. To Hayne, the CEOs confirmed toxic banking cultures, the fostering of unconscionable behaviour, and pause for deeper thought only out of concern for reputational risk and not — in a single instance — out of concern for those stolen from.
The CEOs maintained the line that the whole idea of a free market is that the economy can only arrive at the best outcome if people are free to make their own choices. It had been each customer’s free choice to purchase the financial products they did, their responsibility to educate themselves on risk, their duty to resist sales techniques. Never mind the forging of signatures to create secret new accounts or the ongoing charging of fees on people who were long-dead… “When profit is the only motive, all forms of corrupt and immoral behaviour can be rationalised.”
Banking Bad will not be a fun read for Australian politicos who took positions on bank and insurer boards in the past 35 years. The “repeated material breaches, corruption, and gross incompetence” of these venerable financial institutions was profound betrayal of Scott Morrison’s treasured “quiet Australians”, who had trusted they were in constructive financial relationships with the finance sector but who in reality were being bilked by it as the regulators sighed heavily and did, well, not much else.
The banks might never be able to understand how their customers can feel betrayed, but the political establishment well should:
The banks’ powers rested not just in the profound wealth they were probably producing, but also in the deep connection between the banks and the political establishment. Former heads of treasury, premiers, Reserve Bank governors, ASIC commissioners and ministerial advisers had all joined their ranks, taking up seats on boards and other key positions of influence…The meshing of the political class into the finance sector both reflects the power of the banks and in turn contributes to the power of the banks.
Is it really surprising that public trust in government is a worry for the public service?