Dr Evan Jones In January 2013 I began an article with the words:The National Australia Bank is a corrupt organisation. It also runs a bank on the side.
But running a bank is an essential vehicle for the former – possessing a banking license gives one carte blanche to engage in corrupt practices.
The statement remains as defensible as ever. The NAB has currently been exposed as running a corrupt ‘wealth management’ division.
The NAB has concurrently been exposed, through its British Clydesdale subsidiary, as imposing on small business (SME) and farmer borrowers unconscionably constructed loan facilities. The facilities, medium to long-term fixed interest rate, were marketed as protecting borrowers against potential rate increases. But the costs and risks of the lender’s hedge (or claimed hedge), ill-explained and ill-understood even by the lender, were to be borne by the borrower.
With the GFC, official market interest rates plummeted to near zero. They are still there. The fixed-interest borrowers were on the wrong side of the interest rate ‘swap’ and the ‘break costs’ to the borrower sky-rocketed. Caveat emptor said the bank. At the same time operating conditions became more difficult for business. Clydesdale (along with other banks which had flogged a comparable faulty product) has since engaged in a significant number of foreclosures and customer asset appropriation, and more are threatened.
Clydesdale expanded extravagantly into the south of England after 2003. It hired a bevy of ignorant showy salespeople; it lent intemperately on commercial property. The bank sought to offset the huge cost of these mis-steps, transparent when the GFC hit in 2007-08, by attacking and effectively dismantling previously functioning dimensions of the bank. The profitable agriculture portfolio was left to atrophy or dismantled; competent and loyal staff resigned or were forced out. Staff were retrenched in their thousands. To top it off, post-2008, to recoup losses, Clydesdale ‘repriced’ fixed-interest loans by illegally increasing margins. Clydesdale’s culture had been comprehensively destroyed by its senior managers, to the detriment of its borrowers, with no-one at Melbourne Head Office paying any attention.
The NAB has been engaging in unconscionable or fraudulent practices against its SME/farmer customers since at least the mid-1980s. If the NAB is the most consistent malpractitioner, the CBA joins it at the top of the list with intermittent large-scale scams – from the 1980s foreign currency loan imbroglio, to underpinning the Storm Financial managed investment scam and directing the unconscionable foreclosure of hundreds of BankWest customers after its purchase of BankWest from HBOS in late 2008.
However, no bank has a clean record. The second tier has seen what is possible and is mimicking its elders.
Recently, we have been witness to reportage of ‘incidents’, variously described by bank spokespersons as misadventures, rotten apples, etc. The carnage amongst victimised recipients of ‘financial planning’ advice and unscrupulously constructed ‘investment portfolios’ is now a regular feature of media reporting.
The domain of SMEs/farmers is less well reported, not least because of the complexity of the stories that taxes even the most interrogative of journalists, and limited space on allocated media slots.
Fairfax journalist Elizabeth Knight recently commented [with respect to the CBA kickback scandal involving senior IT personnel] that:
The larger question that will be asked around this latest banking scandal is the culture of this industry that seems to attract more than its fair share of poor behaviour.
Quite, to put it mildly and belatedly. The 2004 APRA report on the NAB’s 2003 trading desk scandal highlighted the NAB’s dysfunctional culture. With a change of CEO and Board Chairman the NAB promised change, but it continued with business as usual. The APRA report has been taken down from the NAB’s website.
The proximate cause of the scale of investment advisee and SME/farmer casualties is the asymmetry of the bank lender/adviser-customer relationship.
In the former case, the asymmetry is leveraged on the ignorance, naiveté and susceptibility of the would-be retail investor.
In the latter case, the asymmetry is centred on a medium to long-term relationship forged on loan facilities (perennially not fit for purpose) that give the lender near total discretion over the terms of the relationship.
In both cases, the asymmetry is enhanced by the fact that customers come to a bank expecting professionalism (knowledge, competence and ethical standards, as per visit to a doctor) but are confronted by personnel of a quite different character. The loosening of standards began as early as the late 1960s.
The root cause of the problem is the uncritical deregulation and privatisation of the financial sector, coupled with a parlous maladministration of the merger provisions of competition law.
Comprehensive deregulation and privatisation were legitimised by the 1981 Campbell Report. Sole emphasis was laid upon the evolving dysfunctionality of the then regulatory structure. Suffused by ideological catechisms, the Campbell Report neglected entirely the history of the finance sector in Australia, leave alone those overseas, which history pointed indubitably to the necessity for a detailed re-regulation of this pivotal sector appropriate to the prevailing environment.
Exposure of corrupt practices during the 1980s led to the diversionary 1991 Martin Inquiry which ultimately legitimised ‘self-regulation’ by the banks in the form of a banking ombudsman and a code of banking practice. The Code (now a useless 72 pages long) has been strategically neutered and the Financial Ombudsman is, with minor pro-victim deliberations, generally in bed with its bank financiers.
So how does it now work in the neglected SME/farmer domain?
A bank will, at its discretion, default a borrower. The borrower may have nothing out of order. But the bank may more readily expedite a default process if its lending managers had previously provided fertile ground – variously through incompetently or strategically imposing inappropriate loan facilities, through strategically writing in inaccurate documentation of a potential borrower’s circumstances (employment, income, etc.), and/or through forging the client’s signature.
To facilitate a customer’s default, the bank calls on a coterie of partners in the enterprise, all corrupted on the drip of bank largesse. Enter the panelled law firms, the valuers, the receivers, selected real estate agents.
All customer assets (including the family home) will have been taken as security, possibly also family assets via guarantees.
Customer cash balances will be stolen. The defaulted borrower will face litigation penniless. The bank will seek summary judgement for appropriation of customer assets, denying a hearing for borrower counter-claims.
Customer paperwork demanded by a customer seeking justice will be claimed by the bank, conveniently, to have been lost.
The defaulted customer will face a court not sympathetic to her/his claims, courtesy of an impoverished legal culture rooted in the law of contract, and a judiciary imbued with calculated ignorance and/or complicity with bank lender interests.
The receiver will probably have ripped the guts out of the business while in (illegal?) possession. It is not improbable that the bank will then sell borrower assets under value, manufacture a residual borrower debt, pursue the borrower to bankruptcy and thus ensure that the borrower is denied access to the courts for any counter-claim. The bank will then claim the manufactured bad debt write-off as a tax deduction.
Meanwhile the relevant regulators (especially ASIC) and bureaucracy (especially the federal Treasury) are missing in action. And the political class, save for a handful of uninfluential exceptions, maintain a cowardly silence.
After thirty years of this scam in operation, there is in the hinterland a despair and a fury that is widespread and deep.
The law of the jungle prevails, legitimised by the authorities. It is long overdue that the relevant regulators, bureaucrats and our elected representatives confronted this crisis and earned their pay in reining in this predatory sector.
* * *
An earlier version of the above article was written and sent to The Age. Melbourne’s premier daily, that paper is headquartered in the Docklands in proximity to the NAB’s headquarters.
There was no reply from the opinion page editor. Conventional courtesies don’t apply for some topics. It was as I predicted.
In 2009, I penned a piece that complemented a (rare) critical editorial, 13 October, in the Sydney Morning Herald, and sent it off to that august newspaper. The issue was the excessive concentration of the banking sector, now dominated by the Big Four – one would have thought not very controversial. No reply. I then sent it to The Age, and thence to The Australian as a test. Ditto. No point even bothering with the Fin Review (which, in a less bigoted era, used to publish me). The article was eventually put on line here.
Whatever nasty things about banks that Fairfax and Murdoch allow in their business pages, they will not tolerate critical opinion on this subject on their opinion pages. Fairfax even censors critical comments on bank-related articles. The print media is thus part of the problem.
As an aside, for lack of an appropriate outlet, I contacted Black Inc.’s Quarterly Essay in July 2010, with a view to gaining a powerful platform for the subject. The Quarterly Essay series had been a publishing success story. In my email I claimed:
The subject is bank malpractice against small business customers. Boring, boring you say. nothing like dissecting the imperfect personas of Turnbull, Rudd et al.
Bank malpractice is a well kept secret. … The story is important not merely for the lack of justice for small business victims, and their collapsed lives that follow (lose the family home, left with nothing, etc.), but also for bigger picture in terms of the systemic failure of the institutions that are supposed to deliver a society with a modicum of integrity. [There then follows a list of all the corrupted institutions that link a corrupt banking sector to a corrupt society at large.]
This issue needs the 25,000 words that only QE can offer.
The editor replied:
Thank you for considering QE as a forum. I regret to say I am uncertain about the broad-based appeal of this essay, important though it is.
And there you have it. This is not a subject that would be general interest, least of all to the cognoscenti.
The Canberra Times has been an exception. Courtesy of an independent editor, my first article on bank malpractice in Australia was published in November 2001. Courtesy of that editor’s longevity in the post, my ten-year revisiting of the same subject was published in November 2011.
In that article I noted:
This [adverse] environment [that tolerates widespread bank malpractice] has been facilitated by comprehensive indifference to bank practices by borrower representative bodies, regulatory authorities and political parties.
Canberra being the nation’s capital, one might have expected that the odd relevant regulator, bureaucrat or Member of Parliament might stir from their indifference. Not a murmur.
The current article above concludes with a plea to the authorities:
It is long overdue that the relevant regulators, bureaucrats and our elected representatives confronted the crisis and earned their pay in reining in this predatory sector.
Similarly, my 2011 article, just cited, concludes with:
It is long overdue that those in political authority confronted that bank malpractice is systemic, and that they acquire some moral fibre in addressing this continuing scandal.
Long overdue indeed. Which repetition points ineluctably to such sentiments being motherhood statements, wishful thinking, rubbish. No matter how cogent one’s analysis of some structural disorder in society, etc., there is the felt imperative to offset such pessimistic ramblings on an upbeat note. Ergo – something should be done about it, and pronto!
Thus can even those rationally given to pessimism be left, if momentarily, in a state of repose. More, and more unjustly, the ruse attempts to sell the readership on that heart-warming solution just around the corner.
It is dishonesty, and the upbeat sentiments are a lie. In my November 2009 article, I concluded with:
Hell will freeze over before either major Party initiates a serious inquiry into the power and culture of the banking establishment.
Ah, the truth for once. No wonder no self-serving member of the mainstream media would publish that article.
In the Australian banking sector, the rot is profound. As a collaborator notes, the banking sector pursues profit at all costs, by legal or illegal means. The only thing that constrains this sector in that pursuit is its incompetence.
The corruption within the banking sector has been facilitated by and, in turn, entrenches widespread corruption in the entire economy and polity. Each bank victim experiences the depth of corruption in their own particular way but, typically, they cannot find a sympathetic ear anywhere.
And remember that the financial predator has left the victim penniless and helpless, additionally devastated by confronting the reality of how this country actually functions and the divergence of that reality from the myths encapsulated in what is curiously called ‘the rule of law’.
If you imagined that this state of affairs might receive some exposure in the university syllabus, repository of wisdom for ‘training’ the next generation of professionals, you would be wrong. This state of affairs is not covered, least of all in banking law classes. It is invisible. Anybody who claims then that this deep and widespread state of corruption exists cannot be taken seriously. And they aren’t.
Given that the authorities have legitimated the law of the jungle, is it not possible that the odd bank victim, and/or their supporters, might take the rules of the game to heart? I have heard of one bank victim, grievously taken to the cleaners first by a major bank and subsequently by a corrupt Appeal Court judgement in favour of the bank, who (with previous aviation experience, and in war-time) had contemplated, in desperation, flying a plane into said bank headquarters. A partial settlement for the victim’s loss, belatedly and pragmatically arranged, returned that unsavoury spectacle to the realm of fantasy. This victim lost 14 years of his life between being sold a poisonous facility and the receipt of the partial settlement.
When the sheriff, accompanied by security goons, with blackguard receivers in tow, arrives unheralded at the farm gate to change the locks on a property that has been in the family for generations, is a violent reaction from the soon-to-be dispossessed not an possibility?
A minor hope on the horizon? Labor Senator Sam Dastyari is now Chairman of the Senate Economics Committee. That same Committee has only recently produced reports that were generally to comprehensively gutless in their avoidance of the systemic character of the problem before them. To wit, the Inquiry into the Post-GFC Banking Sector, November 2012, and the Inquiry into the Performance of ASIC, June 2014.
I have made many submissions to Parliamentary inquiries in the last 20 years, most of them concerning small business or banking matters. Most have been held in camera (not published on the Committee’s website), and their contents ignored. That was the case with my 11,000 word submission to the Post-GFC Banking Sector inquiry. As an exception, my submission (with attachments) to the ASIC inquiry was made publically available (sub #295). Alas, as per usual, its contents were also ignored in the report on ASIC’s performance.
Dastyari is making the right noises. He has even, remarkably, travelled to the UK to dig deeper in the scandal surrounding the NAB’s Clydesdale subsidiary.
This is a promising development. But note that Dastyari is in Opposition. Parliamentarians perennially make loud noises when in Opposition but return to silence or even support for the odious status quo when in government. Instances of this phenomenon are outlined in an article I wrote in July 2014 providing a context to the Senate Economics Committee’s ASIC report.
Many victims have been calling for a Royal Commission into the banking sector. The call has received the support of National Party Senator John Williams, albeit with his own Party colleagues in hiding. Relevant Ministers amongst Williams’ Coalition partners (Joe Hockey, Arthur Sinodinos, Matthias Cormann, Josh Frydenberg) have been resolutely opposed to any action that would mitigate bank power. Labor in office has proved equally abject.
As noted, Hell will freeze over … Has Dastyari read the script? We will know for sure very quickly indeed.This article has been amended and expanded from the original version published at Independent Australia.
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