ANZ chief executive deflects MPs’ questions at first banking inquiry hearing

Wednesday, 23 October 2024

ANZ director Scott St John, and ANZ chief executive Antonia Watson appear before the Finance and Expenditure select committee.

MPs failed to score any notable points in their grilling of ANZ chief executive Antonia Watson in the first hearing of Parliament’s banking inquiry.

National MP Stuart Smith ended Watson’s questioning by MPs on the finance and expenditure select committee with a question about her recently voiced opinion that the country needed a capital gains tax.

Smith asked whether she had considered a more “efficient” and easier to collect surcharge or “windfall tax” on giant bank profits?

“Did you consider a corporation tax surcharge such as on large banks profits as was the case in the UK, and in a small way in Australia?” he asked.

It was not a serious signal that the Government intended to introduce a big bank tax surcharge, but it was also not an entirely good-natured jibe for Watson to stay in her own lane.

Watson countered: “Around the world, we've seen excess profit tax. They've been because it's been something that's happened that's caused an excess profit. I think our submission, and what we've talked about today, has made it very clear that we don't make excess profits.”

National's Stuart Smith and ANZ chief executive Antonia Watson exchange thoughts over a capital gains tax.

ANZ’s annual after-tax profit was more than $2 billion. MPs thought that was very large.

But Watson said: “We're around about at our cost of capital, so the minimum that an investor would choose to earn to keep their money invested in us.”

Smith said: “I don't accept that answer. Respectfully, I don't.

“Reading the Commerce Commission's report, they are very clear that they push back on that sort of argument,” he said.

“They cut, sliced and diced the analysis in several ways to take out those banks that had had issues in the financial crisis. So, I don't accept that respectfully, I don't accept that.

Watson told Smith: “I don't accept us being compared to banks that trade below book value and in some cases, make returns below New Zealand government bond rates.”

National MP Catherine Wedd holds up charts showing New Zealand banks’ very high profitability compared to banks overseas.

“We'll look forward to hearing a bit more about that in the future,” Smith said.

That was a reference to MPs planning to send ANZ specific questions, including on bank’s slow progress on lending to develop housing on Māori land.

The exchange typified a hearing in which MPs failed to rattle Watson, who had ready answers to parliamentarians’ generic questions.

The hearing began with Watson reading from a presentation about how ANZ supported New Zealand, which Smith cut short, telling her: “Can you just wind it up, please. We have all read your submission.”

That drew a rueful laugh from Watson, who was questioned by National’s Catherine Wedd on ANZ’s large profits.

Wedd was one of the MPs on the primary production select committee whose probing of farmer unhappiness with big banks helped lead to the banking inquiry being launched.

But her questioning failed to elicit any different answer than the one ANZ gave to the Commerce Commission, on whose analysis Wedd based her questions.

“We make just over $2b in net profit after tax each year that I acknowledge is a big headline number, but it's about a 12% return on equity which is middle of the road for most publicly listed companies in New Zealand, such a return is about the same as banks overseas.”

She asked whether New Zealand should wanted to compare itself to countries whose bank profits were lower because they had had financial crises.

Some of the countries the commission had compared New Zealand banks to had banks trading below book value, and paying more for their capital. ANZ was perhaps the largest importer of capital to the country, and the bank’s strength enabled that, she said.

Green Party leader Chlöe Swarbrick asked whether ANZ’s Australian parent set its New Zealand operation profit targets each year. Watson and ANZ director Scott St John, a former Fonterra director, said it didn’t.

Under Swarbrick’s questioning Watson denied the Commerce Commission assertion that banks dropped their lending rates “like a feather” when the Reserve Bank Te Pūtea Matua cut the official cash rate (OCR), but raised them “like a rocket” when the OCR went up.

Watson said ANZ “never” held off a change of rates “so that we can drive more profit” from customers, though she also conceded that a “trigger” for moving loan or deposit rates was “competition”.

Labour’s Damien O’Connor asked about dairy farmers’ high debts. Had ANZ “set this up?” he wondered.

MPs launched the banking inquiry in part because of unhappiness with banks in the farming sector, but also offered no instances of ANZ behaving badly towards farmers.

MPs’ questioning on whether ANZ charged farmers too much for loans compared with urban household mortgages led Watson to run through the higher costs and risk of farm lending.

“If we think about the risk in our housing book, it's throughout the country. Each individual loan is relatively smaller and the sorts of things we worry about are people losing their jobs, which is awful for an individual,” she said.

“When we have an issue like we've got in the lamb sector at the moment, that is 30% of our rural lending all at once, having the incomes, you know, significantly reduced.”

Watson side-stepped a question about her pay, telling MPs it was “complicated”, but she acknowledged the cash part was $2.5 million.

Watson was the first bank chief executive to be questioned by the select committee. ASB’s Vittoria Shortt will appear before the committee on November 13, Westpac’s Catherine McGrath on November 20, and BNZ’s Dan Huggins on December 11.