Former BNZ chair calls for Sir John Key to be forced to resign from ANZ

Friday, 31 May 2019

ANZ posts a bumper $1.99 billion profit in NZ.

Former prime minister Sir John Key should resign 'or be removed' as chairman of ANZ over an incident that saw it censured by the Reserve Bank, a former top bank director argues.

Kerry McDonald, who was chairman of BNZ for 12 years until 2008, wrote to Reserve Bank governor Adrian Orr saying he was 'amazed' at the limited penalty imposed on the bank, arguing that Key, chief executive David Hisco and several others at ANZ should resign.

Key, a former investment banker, became chairman of ANZ New Zealand in October 2017, not long after leaving Parliament. A few months later he joined the board of the bank's Australian owners.

Sir John Key was appointed as chairman of ANZ New Zealand in October 2017, not long after leaving Parliament.

On May 17 the Reserve Bank announced that it had revoked ANZ's right to calculate how much risk capital it requires to hold due to 'a persistent failure in its controls and attestation process'.

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ANZ New Zealand's board had been attesting that the model it was using to determine how much capital it was using was compliant with the Reserve Bank's regulatory requirements.

However the bank discovered this year that its operational risk capital calculation had been based on a model which was decommissioned in 2014, without the Reserve Bank's approval.

Kerry McDonald was chairman of BNZ for 12 years until 2008 and also sat on the board of its owners, National Australia Bank from 2005 to 2008. He has written to Reserve Bank governor Adrian Orr saying the banking regulator's actions against ANZ do not go far enough and that he believed several resignations should be required including chairman Sir John Key and chief executive David Hisco.

The action by the Reserve Bank required it to hold another $277 million in capital. No one from ANZ has resigned or been fired over the incident.

On May 19, McDonald told Orr the Reserve Bank's action did not go far enough.

'In my view … this failure indicates that the board was/is not competent and also raises serious questions about the bank's management and reinforces my concern with the competence of the boards of the banks generally,' McDonald wrote.

'It indicates a lack of knowledge, capability and responsibility in relation to the bank's risk parameters, which must be at the core of any banks competence.'

McDonald, who has also been a director on National Australia Bank and was chairman of Opus International until 2017, said resignations were required.

'In my opinion, reflecting the false attestations alone, the chairman and chief executive of the bank should resign or be removed from role, as well as heads of risk, legal and compliance and at least two other directors should be 'retired' as part of a board 'refresh' to improve the overall competence of the board,' he said.

'Otherwise the regulatory process is simply not credible. These were after all behaviors and attestations that go right to the core of the New Zealand banking system.'

Under the terms of bank licences in New Zealand, the boards are required to act in the best interest of the New Zealand bank, rather than the owners.

McDonald's opinion was that the focus on the interests of the New Zealand bank was central to the issue.

'Given the information available it is likely that they were negligent in relation to this critical requirement, which is fundamental to the interests of the New Zealand banks customers.'

He told Orr that the obligation to favour the New Zealand business had frequently created 'tension' with the Australian owners of the bank and it was an issue 'regulators are not giving adequate attention to'.

In a statement a spokesman for ANZ said it 'does not believe there is a systemic failure in its controls and attestation processes'.

The use of the non-compliant model meant ANZ New Zealand was carrying about $23m less capital than it should have been when the issue was discovered.

'This represents a very small proportion of the approximately $12.4 billion in total capital held by ANZ New Zealand at 31 March 2019,' the ANZ spokesman said.

'While isolated, and with no impact on customers or the operation of the bank, ANZ New Zealand is disappointed this error occurred.'

The spokesman did not respond directly for his calls for resignations but said McDonald 'is welcome to discuss the issue with us at any time'.

BNZ and the Reserve Bank declined to comment.