The banking inquiry in which the public will likely learn nothing

Saturday, 26 October 2024

Chair of ANZ Bank New Zealand Scott St John and chief executive Antonia Watson appear before the Finance and Expenditure Select Committee this week.

Luke Malpass is The Post’s politics, business and economics editor

OPINION: What a fizzer.

After a great deal of noise about how bank bosses were going to be pulled in front of Parliament’s allegedly powerful Finance and Expenditure Committee, when ANZ’s Antonia Watson was the first to front up on Wednesday, there was little to show for it by the end.

Instead, it more closely resembled some versions of primary school sport where everyone gets a go, no-one wins and everyone goes home happy. Virtually every MP got three or four questions and chair Stuart Smith kept the whole thing running to time.

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

Watson arrived with relatively new chair Scott St John, and new head of government relations and former 1 News political editor Jessica Mutch-McKay, alongside her boss, public and consumer affairs exec and former Mike Moore staffer Peter Parussini.

The hearing started with National MP Catherine Wedd brandishing charts of comparable international bank profits and demanding how ANZ could justify making $2 billion in profit. It ended with NZ First MP Jamie Arbuckle saying ANZ was “probably” the biggest bank in New Zealand and “probably” the biggest player.

It is the biggest. And by quite a margin. With $194 billion in assets it is far bigger than the other big three, whose assets range between $122 and $128 billion.

It might be a classic New Zealander’s non-committal way of speaking but the way the member did not appear to know ANZ was the biggest bank seems a pretty big fail.

ANZ NZ chief executive Antonia Watson appears before the Finance and Expenditure Select Committee.

Watson defended the profits, saying New Zealand is a market with some level of risk from natural disaster, and that as the bank is a big importer of capital that also comes with a premium. She also said many other banks on the list from other countries are poorly capitalised and unable to recover their cost of capital.

She patiently - and non-condescendingly - explained to the MPs what cost of capital meant: that the banks had to make a margin above capital in the company costs.

Admittedly, Watson is the one of the most impressive big company CEOs on either side of the Tasman, and she made it look easy.

St John and Watson face the select committee.

When this inquiry was being cooked up there was some debate as to whether the Primary Production Committee or the Finance and Expenditure Committee would handle it. In the end, the MPs were from both. It was also something mainly pushed by Government parties, not the opposition. Yet there seemed little appetite for really climbing into the banks, which have made submissions in advance of being heard.

Overall the questions seemed to mostly be around higher interest rates and people doing it tough - even though the banks pass those rates through from the Reserve Bank.

Chloe Swarbrick asked about the extent to which ANZ was run from Sydney.

There was a fair smattering of questions around why rural loans cost more than residential mortgages - a question worthy of investigation. Watson’s answer was that, in effect, risk is far more concentrated in rural loans compared to household mortgages. In the latter the risk is spread across discrete households across the country and the main risk factor for defaulting on a mortgage is if someone loses their job.

In the farming and growing sector the risks are concentrated: lower prices for goods or higher prices for inputs affect the entire industry or large geographic regions, as do drought and extreme weather events. That’s why they cost more.

National MP Catherine Wedd asks ANZ to justify its profits.

ACT MP Mark Cameron asked whether ANZ required farmers to meet certain climate targets before dishing out a loan. Watson responded no. He came back and asked again later. The answer again came back, no. Possibly an interesting line of inquiry about cheaper loan products related to energy efficiency investment and how that all worked, but no follow-up and little opportunity for it.

Greens co-leader Chlöe Swarbrick questioned how much ANZ was controlled from group HQ Sydney. Quite aside from the fact that ANZ is headquartered in Melbourne, St John and Watson clarified that ANZ is an independent subsidiary with an ANZ New Zealand board.

Again, there was a germ of a fruitful line of inquiry here. ANZ’s Groups CEO, Shayne Elliott (an ex-pat new Zealander), sits on the ANZ New Zealand board. It would have been elucidating to ask a series of questions around how ANZ Group sets revenue and/or profit expectations for its New Zealand business. After all, much of the criticism seems to be that the big four banks, with a combined 86% market share, are Australian and the profits move offshore. How that works might be of interest to voters and bank customers. But it didn’t go anywhere.

Labour’s Barbara Edmonds and Deborah Russell asked the best questions, Edmonds on obscure and technical international capital benchmarks and Russell on whether ANZ might start to refuse or call in loans anywhere as a result of climate change. Watson’s answer to the latter was no, but she said this is an issue New Zealand is and will have to grapple with.

It was notable that one of the National Party cameramen was in the hall, no doubt taking clips or photos to show of National MPs. That made it look like the key output was a marketing one - being seen asking the questions, rather than trying to find out the answers.

Finance and Expenditure Committee chair Stuart Smith and ACT MP Mark Cameron.

Sure enough, a few hours later, the photos appeared on Wedd’s LinkedIn page.

Part of the caption that went with them read that “Our banking inquiry is all part of our plan to strengthen the economy so New Zealanders can get a better deal!”

The inquiry, of course, is a Parliamentary thing and not run by the Government. If that’s part of the plan, the plan probably needs to be rethought.

That said, there are a few things the committee as a whole could have done - or could do going forward - to make these sessions more worthwhile.

The first would be for each party to work out who was going to be taking the lead in prosecuting their inquiry and hand over all or most of the questions to that person; the second would to make the inquiry much longer (too late now) to allow the space to fully inquire into matters of interest. And the third would be to make sure whoever was doing that was properly - and deeply - briefed with an understanding of how banks and the banking sector operate.

There was no particular pushback on anything Watson said - save Smith at the end - because there didn’t appear to be enough knowledge to do so.

Smith piped in to ask Watson whether, when she made comments about a capital gains tax as a potential revenue-raiser a few weeks ago, she had considered a “corporation tax surcharge such as on the large banks’ profits, as is the case in the UK and in a small way, in Australia”.

That could point to the direction the committee is headed in. Watson rejected the suggestion ANZ made excess profits compared to other banks.

“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.”

And there the session basically ended.

The really surprising thing was that in the absence of any particular expertise, one might have expected - and the big banks certainly did - highly emotive stories of banks ripping off this or that customer, or farm dispossessions, or whatever. No-one on the committee had managed to rustle one of those up.

Instead the committee mostly relied on the Commerce Commission’s recent report on banking competition.

Which goes back to the more fundamental point of what exactly the purpose of the inquiry is.

It is important and legitimate that MPs reflect the views of their communities and conduct the odd inquiry. But aside from a vague generalised view that the banks are making too much money, there doesn’t currently appear to be much “there” there.

Perhaps the other bank CEO hearings will be better. But considering that the big four are in front of the committee for just 45 minutes, don’t count on it.

This is part of a broader weakness with the select committee system. Committees are meant to work on behalf of Parliament as an institution to probe and improve legislation and hold Government departments to account. Often they do, but the system can also fall prey to party politics and being dominated by the Government parties.

Former Speaker of the House Trevor Mallard and former Cabinet minister Nick Smith both lamented how select committees operate. Smith said they were “lame” and had become “perfunctory rubber stamps”, while Mallard said in 2021 “they are government-directed and less independent and I think that is a pity because it means people are not encouraged into putting time into making careful submissions“.

“They are parliamentarians and legislators and they need to take that responsibility seriously.”

There was plenty that could have been covered, probed and uncovered. Regrettably, the way it was structured, that didn’t occur.

After the select committee, Watson and St John were asked if, in a sense, they were being asked to apologise for their big profits. St John’s answer was succinct and firm: No, they were not, and no, they would not.