NAB’s rethink of banker pay is sensible but won’t be enough

NAB’s rethink of banker pay is sensible but won’t be enough

As a former head of Treasury, Ken Henry has plenty of experience in the failings of the political system, particularly where it involves the frustrations of tax and regulatory reform.

As chairman of NAB, Henry is also one of the few high-level former political bureaucrats to cross over to join the upper echelons of corporate Australia.

Not that this is at all a comfortable place to be right now, especially for a big banker type. Henry’s lunchtime address to the Australian Shareholders’ Association on Tuesday is an admission of the obvious in terms of his more recent career.

So he leaves aside his usual criticisms of politicians failing to address future spending to concentrate on tax cuts in favour of conceding the failings of big business to address what needs to change.

“If it’s form rather than substance, why do it?” he said. (To tick the right boxes, of course!)

Eddie Jim

“The leaders of large Australian businesses have never been under greater scrutiny,” he says. “We have, in several respects, fallen short of community expectations …


“There is no doubt that, if customer interests had been better served and misconduct better addressed and sooner, we would not be participating in a royal commission today.”

Well, quite. Naturally, Henry now agrees the royal commission is a necessary and important process to be a catalyst for action.

He still dismisses the argument that misconduct is a consequence of banks focusing on shareholders to the detriment of their customers.

Mostly, he says, misconduct has been to the ultimate detriment of shareholders as well, given there is generally an alignment of shareholder and customer interest.

But over what time frame is that assessed?

Henry concedes several years of strong returns for bank shareholders haven’t necessarily translated into customers being treated fairly, depositors protected and banks made safe from the risk of failure.

The dual financial objective of a business, he says, should be to maximise customer benefit while also providing an attractive return to shareholders.

Achieving that objective is, of course, the problem. Henry ponders how banks can incentivise people to do the right thing – and do so in organisational cultures that support that.

For most sceptical customers, however, any talk of incentives goes directly to the organisational financial services culture of generous bonuses to people for merely doing their jobs, often very badly.

That leaves NAB, like many other bank boards, rethinking its approach to executive remuneration.

Changes will include having a significant portion of the money deferred to encourage a longer-term perspective and making remuneration simpler for employees and shareholders to understand.

That sounds sensible enough but it’s hardly going to assuage community irritation about the level of bankers’ pay as well as their behaviour.

According to Henry, the main problem in financial services has been an excess of complacency – which also happens to be a recurring feature of Australian politics.

“When historians of finance look back on this period they will identify an unusual level of corporate complacency driven by relatively benign macroeconomic conditions and a long period of impressive ROE performance,” he says.

“They will suggest that corporate leaders fell into believing that a sector capable of generating ROEs in the mid-teens for so many years couldn’t be doing a lot wrong.

“Economic historians look back on Australia’s macroeconomic performance in the 1960s in much the same way. Blessed with an abundance of natural resources and a strongly growing population politicians in the so-called ‘lucky country’ fell into the trap of believing that they didn’t really have to do very much.”

That sort of complacency certainly resulted in a high bill to be paid by Australians over the following decade leading to the reforms of the 1980s and ’90s. Yet reform in this century seems trapped in a depressingly similar repetitive loop in both the political and business cycles.

Now the banks’ miscalculations have been exposed to public view verging on community disgust, the basic question at the heart of the royal commission and countless other reports is how banks (like politicians) regain community trust.

For bankers, that must also include the attempt to limit the onslaught of massive new regulation being imposed from outside by demonstrating their commitment to driving change from inside.

Henry warns that an unintended consequence of the current environment is the fear also being expressed, if without the fanfare, that banks may step back from risk taking. That’s a result, he says, that would do no one any good – least of all bank customers.

But as the commission grinds through another day of excruciating testimony on small business lending and the impact on people who guarantee loans without understanding the risks, it only seems more likely that banks will become considerably more cautious.

Westpac, for example, will be looking very hard at its willingness and processes in using parents as guarantors to fund their children’s business plans.

This is after the protracted probing of its flustered executive, Alastair Welsh, over just one case study that went badly wrong for a sick pensioner mother.

Royal commissioner Ken Hayne expressed himself typically bluntly in asking Welsh to describe the usefulness of Westpac’s supposedly elaborate processes to check on the suitability of a guarantor.

“If it’s form rather than substance, why do it?” he said. (To tick the right boxes, of course!)

Henry’s argument – one that will no doubt be expressed by other chairmen too – is that NAB will still resist any push to become risk averse in terms of its overall lending policies while still putting in new protections for customers.

The bank’s ambition, he insists, is still to take “calculated risks” in order to maximise new growth opportunities and support the economy. Let’s hope.

ETFs poised to be big winners from royal commission: BlackRock iShares

ETFs poised to be big winners from royal commission: BlackRock iShares

Australia’s exchange-traded funds industry could be a prime beneficiary should the royal commission trigger regulation that calls time on the practice of financial services firms pushing their own products, the head of BlackRock Australia’s iShares business says.

Speaking at a media roundtable hosted by the ASX on Tuesday, Jon Howie credited the Freedom of Financial Advice (FoFA) reforms of 2013 as a key factor in accelerating the adoption of ETFs in Australia, and said further regulation springing from the banking royal commission could provide a similar fillip for the industry.

The FoFA reforms, among other things, inserted a requirement that financial advisers act in the best interests of their clients, and also placed a prospective ban on “conflicted remuneration structures”, including commissions.

“What kicked off [the sharp rise in interest in ETFs] was the regulatory change around FoFA where for the first time financial advisers were forced to apply a fiduciary standard and to think very, very carefully about the investment vehicles they used in client portfolios,” Mr Howie said.

Vanguard Australia head of corporate affairs Robin Bowerman agreed that “the ban on conflicted remuneration changed the marketplace”.


Despite the FoFA reforms, this year’s commission has highlighted the conflicts that remain in the system as a result of financial services firms such as Commonwealth Bank, NAB, Westpac and AMP selling their own products through an affiliated network of financial advisers.

This “vertically integrated” model has tended to work against non-affiliated providers of financial products, such as ETFs, but is now under “heavy attack”, Mr Howie said.

“Part of the nature of vertical integration is that it favours products issued by the individual providing the financial advice.

“That model is obviously under heavy attack. It’s fair to say the scrutiny on that model will, if not outlaw it, create a very high bar for it. And I would be very strongly of the view that this will be a another fillip to the growth in [ETFs].”

Newly appointed AMP chairman David Murray has defended the company’s vertically integrated model, and the company has argued that a ban could result in customers missing out on benefits such as the capital backing of a large organisation, and could make advice more expensive.

Self-managed super fund trustees, most of whom do not receive professional financial advice, were early adopters of ETFs and today hold half the total pool of ETF assets in Australia.

“For all of the intention behind FoFA, what happened in many cases was that some organisations found ways to retain their economic model while obviously complying with the law in most cases. I think what this scrutiny will do is force companies to change their economic model,” Mr Howie said.

State Street Global Advisors launched the first Australian-listed ETFs in August of 2001, but there was little take-up from investors “for more than a decade”, he said. Local demand for what is the world’s fastest- growing investment product really got going in only 2013-14, he said.

“Over the last four or five years we’ve seen very rapid growth,” he said, with total assets under management now in excess of $37 billion, from less than $10 billion in 2012.

ETFs provide investors with an easy and cheap way to invest in an underlying index – such as the ASX 200 or the S&P 500 – via purchasing a single listed security.

The two largest are State Street’s SPDR S&P/ASX 200 ETF with $3.7 billion in funds under management, and Vanguard’s Australian Shares Index ETF, with $2.6 billion.

Confused about Airbnb? So is the NSW state government

Confused about Airbnb? So is the NSW state government


Jimmy Thomson

The NSW government’s announcement that it planned to “crackdown” on short-term holiday letting – as epitomised by Airbnb, the biggest but not the only player – left many observers confused.

Why? Because the mooted crackdown could in fact have been the almost total removal of existing controls on short-term holiday lets (STHLs) in what were intended to be residential-only premises.

But now the NSW state government has again thrown the whole issue into disarray – by cancelling, at the last minute, its planned announcement on Tuesday afternoon about the future of Airbnb in NSW.

Speculation is now rife that the Liberals just weren’t satisfied by the softly-softly approach being recommended by Cabinet, and wanted more meaningful action – just in case the controversy over Airbnb spilled over to become an embarrassing election issue.

In a nutshell, the smart money was on the NSW state government deciding that anyone who wants to let their home, their investment properties or rooms in their house to tourists for periods as short as one night could do so, regardless of whether their apartment block or local area is zoned residential-only.


In apartment blocks it was thought it would rule that the unit must be registered with the owners corporation as a holiday let.

Further, there would be a “two strikes” code of conduct on party houses that would disqualify problem properties and “hosts” from short-term letting.

However, there is a question over whether these regulations are necessary – unless it is purely to bow to the new “gods” of the so-called sharing economy. They are certainly more of a loosening up than a crackdown (apart from party flats and houses, which are a tiny part of the overall picture).

Many of the areas where holiday letting is most prevalent already have planning controls that were put in place to protect permanent residents and limit non-residential lets.

City of Sydney development approvals for apartment blocks, for instance, say units must not be let for less than 90 days. Those limits are about to be swept away, although it will make little difference as, of late, councils have been very reluctant to enforce them.

Not just rooms

Any lingering unease about letting Airbnb into Australian homes stems from a disconnect between what it says it is and what it does.

The Airbnb sales pitch all over the media is that it is all about individuals letting rooms in their homes to visitors from overseas and interstate.

It’s an emotional argument that’s been hard to ignore, with a parade of old, lonely people glad of the additional income and companionship that letting a room in their home brings.

Even the most virulent anti-Airbnb campaigner would be hard-pressed to deny these people their enhanced home comforts.

But organisations like Inside Airbnb (which campaigns against the global letting agency) and, at the opposite end of the scale, Madecomfy (which services homes for STH hosts) tell a very different story.

Based on Airbnb’s own online listings, Inside Airbnb claims about 60 per cent of its business in Sydney is entire homes (mostly apartments and predominantly in a small area in the eastern suburbs and northern beaches) plus pockets of traditional holiday areas like Byron Bay and Port Macquarie.

Airbnb challenges the figures but is reluctant to open its books to detailed scrutiny, citing privacy issues.

The online letting agency has also challenged figures provided in a study by Sydney University that claimed its activities had taken 6000 homes out of the Sydney rental market.

Again, efforts to get Airbnb’s “true” figures have, according to the academics behind the study, been stymied by privacy concerns cited by the $30 billion holiday rental global power house.

“Whole home” skew

Meanwhile as an indication of how successful the “whole home” market is, Madecomfy (which manages the properties – from handing over the keys to changing the sheets) recently said property investors should switch to holiday rentals instead of long-term tenancies if they wanted to maximise their profits.

With claims versus counter-claims, horror stories of trashed apartments versus fairytales of Airbnb millionaires and reports that the centres of some European cities have been “cleansed” of all but the wealthiest locals, it has been a very confused picture.

There are also claims that NSW has benefited greatly from additional tourist traffic thanks to non-hotel accommodation.

That said, you have to ask how the STHL lobby’s claims of such a massive boost to tourism tallies with its insistence that it has had no impact on local housing. Tourists aren’t all renting rooms from lonely old ladies, that’s for sure.

Nevertheless, our MPs will vote to ease the restrictions on holiday letting because, according to Airbnb, most people in NSW like the idea and because, for the vast majority of the members, it has zero impact on their constituents.

Add in the recent threats that voters could turn against any MPs who voted against STHLs, backed by an impressively organised campaign of pre-written submissions to the recent review into STHLs, and you can see why MPs might let the unshackling of holiday lets through on the nod.

Most active parliamentary seats

The easiest way to understand this is to look at the map of Sydney on, specifically the parliamentary seats where Airbnb is most active – Sydney, Vaucluse, Manly, North Shore and Coogee.

In Manly there are 1,600 listings, 74 per cent of which are whole homes. In Sydney city there are 8,000 listings, 63 per cent of which are entire flats or terraced houses. In Randwick there are 3000 listings, 58 per cent of which are entire apartments or houses. In the area around Bondi Beach there are 5,200 listings, more than 65 per cent of which are whole homes.

Airbnb will dispute these figures, claiming that the “web-scraping” process employed to identify these properties doesn’t take into account, for example, that many of these whole homes are just people renting their flats while they go travelling themselves (no doubt able to do so because of all the cash they are making on Airbnb). Inside Airbnb demurs – but that’s another story.

The most likely reason why our MPs would ignore the anger of apartment resident-owners who thought they were buying into residential premises and tenants who are being forced out by rents inflated by the STHL market is very simple.

Only a tiny minority of MPs represent areas affected by the influx of holiday lets. Even then, for instance, James Griffin, the Liberal member for Manly is in a safe seat and it would take a 10 per cent swing to unseat Liberal member Felicity Wilson from the North Shore.

Minister for Local Government Gabrielle Upton is rock-solid in her seat of Vaucluse although Bruce Notley-Smith might have a few nerves at the thought of a grass-roots campaign – genuine or otherwise – in Coogee.

It has to be said that in all of these cases, the local voters might love the idea of making more money from holiday lets.

It is understood that several other MP’s voiced concerns about the relaxed rules, including Liberals Damien Tudehope, Melanie Gibbons, John Sidoti and Eleni Petinos.

No party backing

Finally, in the area where most people live in apartments and will therefore be most profoundly affected by neighbours switching from tenanted units to holiday rentals, there is no party backing for Alex Greenwich.

The independent MP for Sydney, who has campaigned ferociously for apartment owners to be allowed to decide whether or not to permit STHLs in their buildings, hasn’t enjoyed the levels of support he received when he led the same-sex marriage campaign.

Regardless of what laws parliament passes, the apartment blocks that really, really don’t want holiday rentals will find ways around them.

Just as MPs in the notorious Bridgeport building near Macquarie St defied planning laws so that they could let their units to tourists while they were back in their constituencies, the smart, powerful and rich owners of apartments in the best buildings will find ways to make holiday lets so difficult and uneconomical that potential hosts will give up and go selsewhere.

But that’s how city living works in the modern age. As Airbnb and Uber have shown, if enough people openly defy the law, then the law gets changed.

Jimmy Thomson edits the apartment living advice website and is a long-time critic of Airbnb.

ASX suffers worst loss in two months on banks

ASX suffers worst loss in two months on banks


William McInnes

The Australian market closed lower on Tuesday, recording its largest daily loss in almost two months as several index heavyweights fell. 

The S&P/ASX 200 Index closed the day down 42.6 points, or 0.7 per cent, at 6041.9, with the major banks the biggest drag on the benchmark. 

Westpac shares fell 0.8 per cent to $28.43,  while ANZ dropped 1.6 per cent to $27.86 as both companies faced the financial services royal commission. NAB  fell 0.6 per cent to $27.09, while Commonwealth Bank finished the day at $70.25, 0.2 per cent lower. 

Telstra shares fell for another session as UBS downgraded the company’s target price. The broker says the telco will have to make aggressive cuts to its dividend yield in order to maintain its credit rating as the company becomes constrained by debt. Its shares hit a fresh 7-year low of $2.74, down 2.1 per cent. 

How the market performed on Tuesday.
How the market performed on Tuesday.

AMP continued to rebound from multi-year lows following a positive note from Morgan Stanley. The broker upgraded AMP to ‘overweight’ and gave the company a price target of $4.50. AMP shares rose 1.5 per cent to $4.02. 


CSL shares fell slightly after a note from UBS said that a product from competitor Roche could pose a threat to CSL’s Afstyla product, following positive clinical trials. The stock closed  at $184.33, down 1 per cent. 

APN Outdoor shares fell after the company announced it had submitted a $500 million takeover bid for Adshel in Australian and New Zealand, entering into a bidding war with oOh!Media. APN closed at $5.11, down 3.4 per cent. 

Healthscope rejected two non-binding takeover offers from Brookfield and a BGH Capital-led consortium, saying that neither proposal appropriately valued the company. Healthscope also lowered its annual earnings guidance on “softer than planned market conditions”, sending its shares down 2.4 per cent to $2.40.

Technology One shares fell after the company announced below expectation half-year net profit before tax of $10.4 million, an increase of just 1 per cent on the prior corresponding period. Its shares closed at $4.65, down 6.1 per cent.

James Hardie Industries shares rose after it announced results for the fourth quarter of the 2018 fiscal year. Its shared closed up 4 per cent at $23.35.

BWX shares surged 35.4 per cent to $5.97 after the company received an $810 million buyout bid from two of its senior executives and Bain Capital, which valued the company at $6.60 a share. BWX shares closed the previous session at $4.40, its 12th session without a gain. 

Stock watch


UBS are remaining cautious on Telstra, downgrading the company’s target price from $3.10 to $2.80. The broker says the company’s dividend is constrained by debt and says its likely the telco receives a credit rating downgrade from ‘A’ to ‘A-‘ or even ‘BBB+’ in the longer term. The broker sees revenues and EBIT for the telco falling for the next several years, forcing the telco to cut its dividend yield from 7.7 per cent in FY2018 to 4.9 per cent to FY2022 in order to maintain its credit rating. The loss of Telstra’s monopoly on fixed last mile and stronger competition in the mobile network means a strong financial position relative to history is required. UBS says that Telstra will need to outline a strong strategy in June in order to soften DPS cuts. The broker is optimistic that 5G will be supportive for the telco which it says the market is not pricing in. 

What moved the market

Gold vs USD

The US dollar has continued to be the main driver of gold prices, putting pressure on the commodity in recent weeks. Gold prices had surged at the start of the year as the US dollar fell. Gold again found support during the height of the US-China trade tensions as investors looked to safe haven investments such as gold and the Japanese yen. Gold has dipped in recent week however and is currently sitting at its lowest point so far this year. This fall was driven by the US dollar which strengthened through April and May on widening gaps in yields between the US and other major countries. Gold investors will be eagerly awaiting April’s Chinese gold imports on Wednesday to see if gold can recover losses made in the past two months. 


Lead prices on the London Metal Exchange have broker through recept support, resisting a six-month US dollar high. Lead prices climbed 3.3 per cent in London on Monday, driven by strengthened demand from China. Analysts are expecting lead prices to continue to rebound higher on this demand although these prices may not be sustained long term. According to ING commodities strategist Oliver Nugent, open interest on the Shanghai lead contract has surged almost 50 per cent this month but said similar spikes were often short lived. “If history repeats then the higher prices and speculation will soon roll over,” he said in a note. 

Aussie dollar

The Australian dollar performed well against a range of major currencies overnight as it recovers some of the losses made during late April. The Aussie hit a near two-month high of 56.47 British pence and a three-month high of 64.38 Euro cents. Improving US-China trade talks helped support the Aussie dollar on Monday night. While there are no major data releases expected for Australia and New Zealand this week, a positive global economic growth outlook and easing financial market conditions will be positive for the Aussie dollar. CBA analyst Joseph Capurso said he believes the Aussie dollar will consolidate in the US74-76¢ region and finish 2018 at US78¢.


Italy has become the latest country who’s investment markets are being shaken by geopolitical tension, in a year in which geopolitical developments are having a significant impact on investment markets. Following the recent elections, a populist coalition is set to govern the country and that coalition is open to the idea of exiting the Euro through an “Itexit”. While this possibility remains unlikely according to AMP’s chief economist Shane Oliver, both parties are supportive of “irrational economic policies”. The uncertainty over how this coalition will run Italy remains a headwind for the Euro and market watchers appear to be worried about the new government as Italian-German 10-year government bond yield spreads widen to their highest level since June-2017. 

“البنك السعودي للاستثمار”: نظرة على نتائج البنك بنهاية الربع الأول 2018

“البنك السعودي للاستثمار”: نظرة على نتائج البنك بنهاية الربع الأول 2018

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