They’re very sorry for the misconduct. The mistakes made were not acceptable. The recommendations from the royal commission were appropriate. The lessons have been learnt and the changes being made now will be long-lasting.

“This has been a massive wake-up call on non-financial risk,” Hartzer said, comparing the commission’s impact to that of the 1991 recession and the GFC. “We are absolutely committed to making sure it never happens again.”

But the committee was determined to look past this forelock tugging.

Got off lightly?

Deputy chairman and Labor MP Matt Thistlethwaite seized on both the views of banking analysts that the final report had been far too soft on the banking sector, and the $20 billion rally in bank stocks following the final report.

Commonwealth Bank CEO Matt Comyn said the bank had learnt big lessons.  Rohan Thomson

“Why was there a rally on the banks when the news was all bad?” he asked Comyn.

Having survived the cauldron of the commission and questioning by Rowena Orr QC, Comyn is now far too light on his feet to get trapped by something like that.

“I see an enormous amount of work that needs to get done, that’s what I’m focused on, rather than the short-term movements in the share price,” he replied.

Hartzer pointed out that the Westpac share price is down 15 per cent since the start of the royal commission.

But he did concede that a more “specific and draconian” intervention on responsible lending laws from the royal commission could have had a “chilling effect” on the economy, credit supply and Westpac’s profitability.

Still, Thistlethwaite had a point about the reaction to the report.

For all these shock and awe around the commission, there does remain a sense in financial markets – and probably in the broader community – that the banks got off relatively lightly.

And politicians from both sides of the divide, safe in the knowledge that bank bashing has never cost anyone a vote, appear determined to make sure that more suffering has been extracted from the Big Four.

Liberal MP and committee chair Tim Wilson started the Hunt for Hayne Pain by asking both Hartzer and Comyn how much they had paid out in customer remediation.

Comyn put his figure at $1.4 billion, while Hartzer said Westpac had provisioned for $380 million.

Big numbers, but the committee missed a big chance to score an important point, as these numbers don’t tell the whole story.

Commonwealth Bank, for example, hasn’t and won’t break down the proportion of its $1.4 billion that has actually gone back to customers – the majority appears to have been spent on establishing the process and systems for remediation.

This $1.4 billion probably speaks more to the poor state of the bank’s internal systems – which we know remains a work in progress, and an ongoing risk across the sector.

Public grilling

Wilson, Thistlethwaite and several other committee members repeatedly pushed Comyn and Hartzer on whether CBA and Westpac executives were in the sights of the regulator following the commission’s referrals of around 24 matters in the final report.

Comyn said it was too early to tell. At this stage the Australian Securities and Investment Commission is working through the referrals, and CBA is providing information as required.

Comyn did admit some 73 executives have been interviewed by ASIC over various matters, but those are mainly past issues, rather than those in Hayne’s final report. He said he wouldn’t like to speculate on exactly which executives might be in the gun.

Hartzer gave a similar answer. None of the referrals in the final report involved Westpac, but it was possible that ASIC was looking into the conduct of individual executives.

The CBA chief executive was also asked whether his bank was one of the institutions that Hayne wanted to see ASIC consider for criminal charges over the fee-for-no-service scandal.

“It is not clear to us exactly which of those institutions they are,” Comyn replied.

Labor’s Matt Keogh pressed on remuneration: Were those huge remediation bills being reflected in lower pay for executives?

Comyn pointed to the 2018 financial year, where he said $100 million worth of “consequences” had been felt by executives. He also voluntarily gave up his own short-term bonus last year.

Keogh went further, asking if the bank had in place a method to claw back director fees where problems were identified. This was a reference to former chairman David Turner refusing the request of current chairman Catherine Livingstone to hand back 40 per cent of his fees in the wake of the prudential regulator’s report on the board culture.

Comyn had to concede there was no such mechanism in place at this point.

Thistlethwaite also brought up ASIC’s investigation into whether the bank had met its continuous disclosure obligations over the AUSTRAC matter.

Hadn’t CBA chairman Catherine Livingstone previously told the committee that there were no such breaches, the Labor MP asked Comyn.

“We believe that the bank complied with its continuous disclosure obligations,” he replied, adding that he believed the corporate watchdog was gathering more information.

Ongoing problems

The committee did a good job probing the work still in front of the banks as they reform their culture, processes and systems.

Comyn was rightly grilled on the fact that the bank is still struggling to turn off ongoing fees for some wealth customers, and had failed to meet an ASIC deadline to do so.

He said the delay had been unacceptable, and pushed part of the blame on to the service providers who needed to turn off their fees before CBA could sort its own system. Comyn said 97 per cent of the fees had now been stopped, and the job will be completed in around 10 days.

Hartzer said the bank still has 800 cases outstanding with the Australian Financial Complaints Authority, and there had also been a rise in the number of disputes since the royal commission.

And for all the support the Westpac boss gave to the commission’s recommendation, he continued the sector’s rear-guard action against Hayne’s edict that the definition of small business should be increased from a firm with a $3 million loan to those with borrowings of $5 million.

Hartzer said the change would “expose the banking sector to extra risks that it’s not comfortable with … The likely response would be a tightening up of credit for customers in that cohort, and potentially a rise in the cost of credit.”

Given these ongoing issues, and the view that the banks escaped a real royal commission drubbing, the committee’s push to know who will actually feel pain for the banks’ misdeeds – be that lost wages, or fines, or even jail time – is probably pretty reasonable.

The question is whether this thirst for more blood leads politicians to find other ways to hit the banks.

Labor’s plan for the banks to pay $160 million to fill a “banking fairness fund” – out of which the domestic violence program will be paid for – is an example of how the sector could be hit during the election campaign.

It’s not hard to imagine how the angst seen during Friday’s hearings translates into other measures as the parties get desperate in the weeks before the election.

Could one party suggest an increase in the bank levy to send a further message? Could the banking fairness fund be enlarged to pay for other policy initiatives, or copied by the Coalition?

Before the politicians push ahead, it might pay to remember Comyn’s answer to a question from Tim Wilson as to who foots that $1.4 billion remediation bill the bank already racked up – and who will foot the bill for any other measures the banks could be hit with.

“Ultimately our shareholders do,” Comyn said. “There’s no escaping that.”

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