Tag: ANZ

More Banks Behaving Badly

ASIC is taking ANZ to court in the last of the post Royal Commission actions and APRA reported on the latest bank financial data as new high debt to income ratio loans continue to climb.

https://www.apra.gov.au/news-and-publications/apra-releases-quarterly-authorised-deposit-taking-institution-statistics-9

https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-340mr-asic-sues-anz-for-misleading-customers-and-failing-to-provide-promised-benefits-final-royal-commission-investigation/

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Big bank CEOs Deny ‘Loyalty Tax’ Accusations

The chief executives of the big four banks have doubled down in defence of their mortgage pricing decisions after being accused of profiting off a “loyalty tax” imposed on customers. Via The Adviser.

Appearing before the House of Representatives standing committee on economics on Friday (15 November), NAB chairman Philip Chronican and ANZ CEO Shayne Elliott denied that the banks have been “profiting from inertia” by charging existing mortgage customers higher rates in a lower rate environment.

Deputy chair of the committee and Labor MP Andrew Leigh accused the banks of imposing a “loyalty tax” on existing borrowers, which do not receive rate discounts offered to new customers.  

In response, NAB chairman Philip Chronican said there were a range of factors influencing the bank’s pricing decisions, adding that the level of discounting on a particular loan was determined by the characteristics of the credit contract.   

“On our variable rate mortgage products, we charge different rates for different products for a whole range of reasons,” he said.

“The overwhelming majority of our variable mortgage rate customers, in fact, 97 per cent, have discounts below the standard variable rate, and each of those discounts are set with reference to the riskiness of the loan, the size of the loan, and the combination of business that the customer brings in. 

“The discount is for the life of the loan, unless of course the customer, at their discretion, comes back and wants to reunite with us or refinance with another organisation if they can get a better deal.”

Mr Chronican said that in light of cuts to the cash rate, the bank has offered existing customers reviews of their home loans.

“We offer all of our customers a review of their mortgage and have called all of our customers over the past 12 months, asking if they’d like a review of their mortgage,” he said.

“In the month of October alone, 15,000 customers took advantage of that and we increased the discount on those.”

However, deputy chair of the committee Andrew Leigh pressed Mr Chronican, asking: “Why is it that customers have to respond to a request for a review rather than simply receiving the same rate as a new customer would get? Aren’t you profiting from inertia?”

To which Mr Crhonican responded: “It doesn’t exactly feel like that. It’s a competitive market to get new business. 

“We are accurately conscious that we want to retain our customers, but as I’ve explained, the differences are not as great as many people make them out to be.

“We compete at a point of time to get a customer, and we quote a discounted rate to get them and be competitive.”

He conceded: “We are conscious that overtime, those rates become uncompetitive, but [it’s] hard to have an individual negotiated rate if everybody has to get the same rate.”

Meanwhile, ANZ CEO Shayne Eliot flatly rejected claims that the bank has been charging a loyalty tax, also citing competitive pressures.

“I don’t accept the concept of loyalty tax. What we do is we competitively priced our products every day to offer the best price that we can for the services that we provide,” he said.

“Given the nature of our products, you will no doubt be referring to that there is a difference between what is known as the front book and the back of book; the pricing that we charge a new customer today versus the customer yesterday, or previously.

“But we don’t impose a tax. It’s an outcome of a highly competitive well-functioning market.”

When asked if it was “unusual” to charge customers different prices for the same product, Mr Elliott said: “Well, it’s not the same product, with respect. A mortgage today is not the same as a mortgage tomorrow or week ago.

“We price mortgages on the day based on the environment they’re in, the cost of funds on that day, the risk environment on that day and the competitive environment on that day, so I’m not sure that they are equivalent products.”

Scrutiny over the pricing behaviour of the big banks recently intensified following their failure to pass on the RBA’s full 25 basis point cuts to the cash rate.

This triggered Treasurer Josh Frydenberg to commission the Australian Competition and Consumer Commission (ACCC) to conduct a Home Loan Price Inquiry. The inquiry will review pricing behaviour from 1 January 2019 to examine:

  • the differences between advertised rates and the prices actually charged or paid;
  • the differences between rates paid by existing customers and those paid by new customers (front and back book pricing behaviour);
  • pricing decisions in response to changes to the official cash rate; and
  • factors preventing customers from switching to cheaper home loans.

In exploring these matters, the ACCC will consider consumer decision making and biases, information used by consumers, and the extent to which lenders may contribute to consumers paying more than they need to for home loans.

ANZ CEO received remediation from bank

ANZ chief Shayne Elliott has revealed he was sent three remediation letters from the bank, insisting that the company will refund every single customer it has wronged, via Investor Daily.

Appearing before a parliamentary committee on Friday, Mr Elliott commented many customers receiving remediation wouldn’t have known there was an issue at the time, pointing to himself as an example.

The bank is in the process of working through 247 problem products and around 250 issues, assessing customers and determining whether they were charged the wrong interest or fees. 

The majority of issues were revealed to be associated with the banking side, rather than the wealth segment and “fees for no service”. 

“So the million customers that we’ve refunded today, most of them got a cheque in the mail and a nice little letter and they didn’t even realise it,” Mr Elliott said. 

“I’ve had three. One was $30, one was $27 and one was $80. The average amount that’s being repaid out, you can do the maths. 

“It’s important we get the money back; I’m not diminishing that. But we are remediating every single case. There’s nothing to do with complaints. This had to do with we have discovered a mistake, and we have gone and put it right.”

Mr Elliott predicted there are around 3.4 million customers in total who are owed refunds from the bank, with around one-third having received their remediation.

ANZ has set aside $1.6 billion in reserves for remediation, with the amount that has been refunded so far ($l67 million) being around a tenth of that. 

Mr Elliott conceded the bank’s progress through returning customers’ money has been “modest”.

“We’ve taken provision of around $1.6 billion of that, maybe around $400 million has more to do with cost,” he said.

“That’s the cost of getting the money back.”

The bank now has 1,100 staff working sorely on remediation, with a further estimated 600-700 full-time employees lending a hand from other departments. ANZ has around 38,000 staff in total.

Mr Elliott said ANZ will give the remediation team all of the resources it needs.

“That team has no restriction on number of people they need to hire, none. They can hire as many people as they want,” Mr Elliott said.

“They have no budget restriction. Yeah, the restriction in a sense, the binding constraint, if you will, is not money or headcount, its expertise. 

“We want to finish those [remediation programs] and find any other problems we have. We have a productive program where we are searching through every single product and process we have to see if there’s anything that needs remediating, big or small, we add it to the list and we get it done as fast as possible,” he said.

Despite the bank’s remediation process having had a gradual pace, as far as Mr Elliott is concerned, it is in the bank’s best interest to complete the refunds as fast as it can.

“My shareholders have already paid the $1.6 billion, it’s gone from their accounts, it’s gone,” he said.

“So when we take that provision, we’ve expensed it. So there is no benefit in delay. So now actually, there’s benefit in speed because the delay costs money because the longer [it is], the accrued interest keeps mounting up, and I have to pay more and more.

“There might be a perverse incentive to not discover issues, if that makes sense. But once you’ve discovered them, we have a legal obligation to provide and expense the money. The 1.6 billion, as far as we’re concerned is we’ve spent it – so now the sooner we get that money back to customers, the better.”

ANZ Takes Another $559 million Remediation Bill Hit

ANZ has announced that its second half 2019 (2H19) cash profit will be impaired by a charge of $559 million (after-tax) as a result of increased provisions for customer related remediation.

The costs include a $405 million after-tax ($485 million before tax) charge within continuing operations, which the bank said largely related to product reviews in Australia retail & commercial for fee and interest calculation and related matters.

ANZ added that such costs also include historical matters recently identified during the period, as well as refinements to estimates of existing customer compensation programs and associated costs.

Further, within discontinued operations, remediation charges recognised in ANZ’s 2H19 results will be $154 million after-tax ($166 million before tax), which ANZ claimed are primarily associated with the advice remediation program and customer compensation charges for other wealth products.

This might not be the end of the matter, as the charges relate to issues that have been identified from previous reviews and from reviews which remain ongoing.  

Following the announcement, ANZ chief financial officer Michelle Jablko said: “We recognise the impact this has on both customers and shareholders.

“We are well progressed in fixing issues and have a dedicated team of more than 500 specialists working hard to get any money owed back to customers as quickly as possible.”

ANZ will release its full-year 2019 financial results on 31 October.

ANZ Q3 2019 Update

ANZ today provided an update on credit quality, capital and Australian housing mortgage flows as part of the scheduled release of its Pillar 3 disclosure statement for quarter ending 30 June 2019 and associated chart pack. Given the strategy was to shed a portfolio of businesses and focus on the Australian retail market, we need to give attention to their shrinking mortgage book and rising delinquencies.

Total provision charge of $209m for the June quarter remained broadly flat compared with the 1H19 quarterly average, while the individual provision increased $68m to $258m. Total loss rate was 13bp (consistent with the 1H19 loss rate of 13bp).

90+ Days Past Due Loans rose in the quarter.

Mortgage delinquency rose in 3Q19, with 90 day increasing 14bp to 114bp. On a geographic basis, ~9bp of the movement came from NSW and VIC in aggregate. On a product basis, ~1/3 of the movement came from Interest Only home loan conversion to Principal & Interest.

WA still leads the way, but delinquencies are also rising in other states. FY17 & FY18 vintages continue to perform better than FY15 & FY16 (when of course lending standards were at their most loose, plus as we know from our mortgage stress work, it can take 2-3 years for households in financial stress to go delinquent). ANZ’s performance is likely to be biased higher given its shrinking mortgage portfolio, as we discuss below.

Group Common Equity Tier 1 ratio (APRA Level 2) was 11.8% at the end of June 2019, a ~30bp increase for the June quarter. On a pro-forma basis, inclusive of announced divestments and the recently announced capital changes, ANZ’s Level 2 CET1 ratio is 11.5%.

As indicated at ANZ’s first half result presentation, expectation was for home loan volumes in Australia to decline during the June quarter, with Owner Occupied down 0.2% and Investor down 1.8% (June 2019 compared with March 2019).

They say that home loan applications improved in July 2019 with actions taken in recent months to clarify credit policy and reduce approval turnaround times having a positive impact.

ANZ sued for unconscionable conduct

ASIC has commenced proceedings in the Federal Court against ANZ over allegations relating to charging of fees for periodical payments. Via InvestorDaily.

ASIC advised ANZ earlier in the day that it would commence proceedings in relation to the charging of fees for periodical payments in certain circumstances prior to February 2016. 

The commission is alleging that ANZ was not entitled to charge certain fees under the bank’s contracts with its customers. 

These fees were the subject of a class action which were settled out of court for $1.5 million, pending court approval. 

ASIC said that ANZ’s contract terms and conditions defined a periodical payment as a debit from an ANZ account which the customer instructed ANZ to make to the account of another person or business. 

The definition of the payment excluded payments between two accounts in the name of the same or business, but ASIC alleges that between 2003 and 2016 ANZ charged fees for payments between same name accounts. 

Transaction fees were charged when a periodical payment was successful and non-payment fees were charged when the payment was not. 

For businesses these transaction fees were between $1.70 and $4 and non-payment fees were between $35 and $45 while for individuals they were $4 and between $6 and $45 respectively. 

These fees were charged on at least 1.3 million occasions alleges ASIC and the commission contends that the bank first became aware of the risk in July 2011. 

Despite this ASIC will say in court that ANZ did not provide written notification of the issue’s existence until 2014, did not commence notifying customers until September 2015 and did not change its terms and conditions until February 2016. 

ANZ first reported the matter to ASIC in February 2014 and in September 2018 the bank contacted ASIC advising that information previously provided was incomplete. 

As a result, ASIC commenced an investigation in October 2018 which has since concluded leading to the court case. 

ASIC is alleging a breach of both the Corporations Act and the ASIC Act for the bank’s failure to ensure that financial services are provided efficiently honestly and fairly and for engaging in misleading or deceptive conduct. 

It alleges this was because the bank continued to charge the fees even when it became aware that the fees were potentially unlawful and highly unlikely that it could remediate all affected customers. 

The ASIC act contraventions attract a maximum penalty of between $1.7 million and $2.1 million per contravention. 

Background

ANZ has already begun to pay out customers that were affected by this issue after settling out of court a class action brought about by Maurice Blackburn. 

The class action launched by Maurice Blackburn in 2010 was against various fees charged by banks but ultimately was lost by the law firm in 2016. 

However, ANZ was ordered in one part of the Federal Court trial to repay customer’s fees in relation to periodical payments.

The types of fees were on the smaller side and paid by customers when a pre-arrange payment between its own accounts was not made due to insufficient funds or for automated transactions between accounts. 

The bank stopped charging the fees in February 2016 and ANZ confirmed it had set aside $50 million in customer remediation payments for this matter of which more than $28 million has already been paid to customers impacted.

Fitch Ratings downgrades Westpac, ANZ outlook

Credit rating agency Fitch Ratings has changed its outlook on Westpac and ANZ from “stable” to “negative”, following APRA’s update of its capital requirements for the major banks. Via InvestorDaily.

While the additional operational capital requirements should remain manageable for the banks, Fitch said the main driver for the changes were driven by a concern for governance and culture in the institutions. 

Westpac recently released its self-assessment on governance, accountability and culture, admitting significant shortcomings. 

The big four evaluated themselves last year when APRA chair Wayne Byres wrote to the country’s banks, insurers and super licensees after the CBA prudential inquiry. He asked them to determine whether weaknesses uncovered at CBA existed in their companies. 

The result of the self-assessments led APRA last week to increase the minimum capital requirements by $500 million and prompted Westpac to release publicly its self-assessment. 

ANZ is the only bank of the big four which has yet to publish its self-assessment.

“The additional capital requirements should remain manageable and not impair the bank’s ability to meet APRA’s ‘unquestionably strong’ targets starting in 2020, but it indicates material shortcomings in operational risk management, which were not aligned to what Fitch had previously incorporated into its ratings,” Fitch said in its update on Westpac. 

“This has resulted in a downward revision to our score for management and strategy and weaker outlook on earnings and profitability.” 

The rating agency made a similar note on ANZ, saying APRA’s findings indicated deficiencies within both companies’ management of operational and compliance risks, culture and governance.

However, Westpac said Fitch’s affirmation of its rating at AA- meant despite the challenges the bank faces, the credit agency expects it to “maintain its strong company profile in the short term, which in turn supports its strong financial profile.”

Likewise, ANZ was reaffirmed at AA- for both its banking group and New Zealand company. Fitch stated the group “continues to have robust risk and reporting controls around other risks, including credit, market and liquidity risk, as reflected by its conservative underwriting standards and very high degree of asset quality stability.”

Separately, on 9 July S&P Global Ratings affirmed the AA- long-term and A-1+ short-term issuer credit ratings and revised its outlook on the major Australian banks to “stable” from “negative.”

Westpac commented: “This outlook change reflects S&P’s view that the Australian government remains highly supportive of Australia’s systemically important banks based on APRA’s release on loss absorbing capacity.”

APRA applies additional capital requirements to ANZ, NAB and Westpac

The Australian Prudential Regulation Authority (APRA) is applying additional capital requirements to three major banks to reflect higher operational risk identified in their risk governance self-assessments.

APRA has written to ANZ, National Australia Bank (NAB) and Westpac advising of an increase in their minimum capital requirements of $500 million each. The capital add-ons will apply until the banks have completed their planned remediation to strengthen risk management, and closed gaps identified in their self-assessments.

The increase in capital requirements follows APRA’s decision in May last year to apply a $1 billion dollar capital add-on to Commonwealth Bank of Australia (CBA) in response to the findings of the APRA-initiated Prudential Inquiry into CBA.

Following the CBA Inquiry’s Final Report, APRA wrote to the boards of 36 of the country’s largest banks, insurers and superannuation licensees asking them to gauge whether the weaknesses uncovered by the Inquiry also existed in their own companies. Although the self-assessments raised no concerns about financial soundness, they confirmed that many of the issues identified in the Inquiry were not unique to CBA. This included the need to strengthen non-financial risk management, ensure accountabilities are clear, cascaded and enforced, address long-standing weaknesses and enhance risk culture.

APRA Chair Wayne Byres said: “Australia’s major banks are well-capitalised and financially sound, but improvements in the management of non-financial risks are needed. This will require a real focus on the root causes of the issues that have been identified, including complexity, unclear accountabilities, weak incentives and cultures that have been too accepting of long-standing gaps.

“The major banks play a vital role in the stability of the entire financial system, and APRA expects them to hold themselves to the highest standards of risk governance. Their self-assessments reveal that they have fallen short in a number of areas, and APRA is therefore raising their regulatory capital requirements until weaknesses have been fully remediated,” Mr Byres said.

APRA supervisors continue to provide tailored feedback to other banks, insurers and superannuation licensees that provided self-assessments to APRA. Where weaknesses have been identified, the level of supervisory scrutiny is being increased as remediation actions are implemented. Where material weaknesses exist, APRA is also considering the need for the application of an additional operational risk capital requirement.

NZ Reserve Bank requests assurance reports of ANZ New Zealand

The New Zealand Reserve Bank is requesting two reports from ANZ New Zealand to provide assurance it is operating in a prudent manner.

They say, that section 95 of the Reserve Bank of New Zealand Act 1989 gives the Reserve Bank the power to require a bank to provide a report by a Reserve Bank-approved, independent person. These reviews can investigate such issues as risk management, corporate or financial matters, and operational systems.

The first report will cover ANZ New Zealand’s compliance with the Reserve Bank’s current and historic capital adequacy requirements.

The second report will assess the effectiveness of ANZ New Zealand’s Director’s Attestation and Assurance framework, focussing on internal governance, risk management and internal controls.

Reserve Bank Governor Adrian Orr said ANZ remains sound and well capitalised.

“We continue to engage constructively with ANZ New Zealand’s board, and they remain focussed on these important issues. These formal reviews will allow us to work with the bank to ensure the public, and we as regulator, can have continued confidence in the bank and that it is operating in a prudent manner.”

“Section 95 reports are part of our supervisory toolkit and provide independent assurance and insight about banks’ systems and practices. We have used them effectively in the past, and we will continue to do so.”