Chalk up the mooted appointment of former Westpac CEO and specialist bank investor, David Morgan, to advise Joe Hockey’s financial inquiry as another win for the “too-big-to-fail” major banks that are meant to be the prime target of the review.
The sector’s powerful lobby group, the Australian Bankers Association, will be happy that its ex-chairman will join the 39-year veteran and boss of CBA, David Murray, a decade-long director of Westpac, Carolyn Hewson, and the outgoing head of AMP and its banking subsidiary, Craig Dunn.
I’ve personally dealt with Dr Morgan, who started off life as a child actor, several times and there is no doubt that he is an outstanding human being.
As the European leader of JC Flowers, which was founded by the Goldman alumnus and chess master Christopher Flowers, Dr Morgan invested £100 million ($183 million) into a “shared equity” lending business idea I helped develop with several others. (I am not involved in the UK enterprise, called Castle Trust, which is based on a business, Rismark, that I did establish and which Castle Trust’s founder invested and worked in.)
I’ve argued in these pages that there is a worrying nexus of influence between Australia’s regulators, including the Reserve Bank of Australia and Treasury, and the major banks. I’ve highlighted that two recent treasury secretaries, Ken Henry and Ted Evans, and the last RBA governor, Ian Macfarlane, have immediately joined major bank boards upon their departure from public service. It is not a good look.
Dr Morgan also falls into this camp. After a distinguished career at the Commonwealth Treasury he joined Westpac under its American boss, Bob Joss. Whereas Mr Murray, Ms Hewson and Mr Dunn have been “poachers” for the bulk of their careers, with no executive regulatory or policymaking experience, Dr Morgan has the benefit of having spent the early part of his life dedicated to formulating and implementing reforms inside Treasury.
If he was retired with no contemporary conflicts, he might be the perfect person to lead Hockey’s review, which increasingly runs the risk of becoming a lame duck.
But Dr Morgan is now the European head of a private equity business, JC Flowers, that specialises in investing in banks. According to reports, he currently serves on the boards of six different banks. JC Flowers has looked at investing in Australia before and has the capacity to do so in the future.
So Dr Morgan is another example of a current or former poacher being appointed a gamekeeper by Mr Hockey, who clearly has a case of the yips. In opposition Mr Hockey had no fear about taking on the big bank oligopoly. Today he is being unduly managed by it.
The absence of significant numbers of bank customers (aside from CSL’s Brian McNamee), and unconflicted individuals with deep policymaking and regulatory experience, suggests the entire exercise could be a waste of time.
(For the record, I had discussions with Hockey’s team and Treasury about potentially joining the inquiry’s secretariat but could not do so because it was a full-time position.)
We all sincerely hope these concerns prove unfounded. We hope the cabal of bankers running the Hockey inquiry have the independence of mind to aggressively seek to price or remove the many taxpayer wealth transfers that make the banking system, and the four majors in particular, the most heavily subsidised and moral hazard prone sector of the Australian economy.
But on the balance of probabilities this is unlikely. Mr Murray, who is personally vetting all inquiry appointments, has lambasted the utterly appropriate deposit levy as an economy-wide tax, faulted widely supported IMF calls for the big four to hold more capital and reduce their leverage, and defended the majors high-teen returns on equity, which are the single clearest artefact of their too-big-to-fail status.
Christopher Joye is a director of YBR Funds Management, which is half owned by ASX-listed Yellow Brick Road Holdings.Author: Christopher JoyeSource: Australian Financial Review
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