NAB’s Bloodbath Shows the Value of Contrition

(Bloomberg Opinion) -- Suspects are always told to put on a smart suit and a humble manner for a court appearance. It’s not so different for bankers facing public inquiries.

That’s certainly the conclusion you’d draw from the bloodbath at the top of National Australia Bank Ltd. Chief Executive Officer Andrew Thorburn will step down by the end of the month, the bank said after the market closed Thursday. Chairman Ken Henry – a former Treasury secretary and Reserve Bank of Australia board member, and still a director at market operator ASX Ltd. – will follow as soon as Thorburn’s replacement is appointed.

The immediate cause isn’t hard to discern.

In the Royal Commission inquiry into Australia’s financial sector that concluded Monday, Commissioner Kenneth Hayne singled out the pair for unusually stinging criticism. After hearing their testimony in November hearings, “I am not as confident as I would wish to be that the lessons of the past have been learned,” he wrote. “My fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains.”

NAB’s Bloodbath Shows the Value of Contrition

From the bank’s perspective, the move makes a certain amount of brutal sense. Thorburn has been in the job for almost five years, roughly the tenure of his predecessor Cameron Clyne. Given how much NAB’s share price is now lagging Australia’s other big four banks and the cloud Hayne has set over his performance, there’s little point hanging around much longer.

Although much of the “fees for no service” activity for which he was lashed happened before he started in the top role, the perceived lack of contrition clearly angered the commissioner:

The amounts of money that just ‘fell into the pocket’ of so many large and sophisticated financial entities, the number of times it happened, and the many years over which it happened, show that it cannot be swept aside as no more than bumbling incompetence or the product of poor computer systems. 

There’s a risk for Thorburn and Henry’s peers elsewhere in that judgment, as NAB wasn’t the only institution to be singled out.

Westpac Banking Corp. CEO Brian Hartzer, who’s just marked his fourth anniversary in the job, also came in for criticism, albeit more muted.

The bank has in many ways done least to reform itself since the inquiry started, hanging onto its wealth and insurance businesses while rivals have shed divisions. Hartzer has attempted to improve Westpac’s relationship with the Australian Securities and Investments Commission, the corporate regulator, but Hayne seemed less than entirely convinced that the attempt was sincere.

The chairman of the country’s other financial regulator should also be looking over his shoulder. In Hayne’s estimation, Wayne Byers, the head of the Australian Prudential Regulation Authority, essentially shared Thorburn’s view that the “fees for no service” scandal was a product of incompetence rather than malice. With a Labor government likely to take office before his second five-year term in office begins in July, Byers would be wise not to get too comfortable.

At the same time, it’s striking the extent to which executives’ fate is being decided by their performance on the witness stand.

Commonwealth Bank of Australia and Australia & New Zealand Banking Group Ltd. received qualified approval from Hayne, on the basis that their chief executives’ testimonies suggest they’re “well aware of the size and nature of the tasks that lie ahead.”

That may well be the case. The commission has had a year to probe the affairs of Australia’s banks, so it’s in a position to judge how much their culture is changing.

NAB’s Bloodbath Shows the Value of Contrition

Still, NAB and Westpac have by no means been the worst offenders in the past. In the fees for no service scandal, it’s Commonwealth Bank that’s having to pay by far the largest sum in compensation, with Westpac relatively untouched and AMP Ltd. – subject of another brutal boardroom clean-out last year – almost peripheral. The sympathetic affect of Commonwealth Bank’s and ANZ’s executives seems to have gone a long way.

Turning around the internal practices of any company is an immense task. Australian bank executives with an eye on their jobs will want to be doing the utmost to assure regulators and the public over the coming years that culture change is the first, second, and third thing that they’re thinking about. But there’s a difference between giving a good account of yourself on the witness stand and actually carrying out difficult changes. Only time will tell whether Hayne’s shots were fired at the right targets.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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