The Slow Death of the Banks

Finance and fraud go hand in hand. Not always, but often enough to draw a meaningful connection.

It follows that financial giants like banks are the most susceptible to the intoxicating and wolfish lifestyle of fast paced money. Because when it comes down to it, financial institutions are made up of people. And people get greedy.

Since the financial crisis of 2008, the big four Australian banks have paid over $1 billion in fines for deceiving customers through various schemes. Schemes that usually involve rewarding staff for selling mortgages or credit at all costs, despite the financial circumstances of the customer.

It was this misconduct that led to a $75 million royal commission into banking that kicked off last month. And it’s looking like, by the time it’s over, the banks are going to have to dish out a lot more than $1 billion.

Over the last fortnight of hearings, various witnesses gave detailed evidence of the appalling misbehaviour of Australia’s banks over the years.

One particularly emotional case involved an admitted gambling addict who revealed that Commonwealth bank kept offering him increases to his credit limit despite his requests otherwise.

Details also emerged regarding the scandalous bribery ring that NAB employees were implicated in. Damning evidence revealed that staff were accepting fake Medicare cards, forged documents and cash bribes to sign customers up to home loans. An incentive that was a direct result the exorbitant commission bonuses that NAB offered to their staff for doing so.

Bonus incentives like these have plagued all four of the big banks — speaking to a broader, malicious sales culture that motivated staff to sell consumers risky financial packages.

And with all of the evidence now surfacing, it’s no surprise that Australians are now speaking up. Since the commission began in February, public submissions of misconduct have jumped from 400 to 1,894. And millions of dollars have also been paid back to customers who had been misled by the banks.

Senior council member Rowena Orr said that the banks have not acted ‘efficiently, honestly and fairly’ and may have breached the Corporations Act and National Credit Act on numerous occasions.

They are also guilty of straight up incompetence, particularly when it comes to failing to crosscheck information. When asked whether confirming a customer’s finances was too hard, ANZ’s head of home loans William Ranken stumbled over his words. Eventually mumbling:

It’s not that it’s too hard, it’s actually that it – it is hard – but it’s not that it’s too hard. It’s too hard, but there are better ways to get a better level of comfort around a customer’s expenses’.


Aussie banks have had it easy… until now

No wonder we’ve all lost our faith in the banks. So much so that the big four banks have lost around four percent of their value since the commission’s commencement.

And with a new code of conduct about to be implemented, they could be in for even harder times.

In the wake of the credit scandals, the banks may be forced to tighten credit restrictions, making it more difficult to obtain a loan. And as George Tharenou of UBS investment bank warns:

If credit tightening lasts for longer than we anticipate, and evolves into a “credit crunch”, there is potential for an economic downturn.

All that said, consumers aren’t completely innocent on this front. Bankers are salesmen. And no matter how convincing their pitch is, the decision ultimately lies with the consumer.

If we were to prosecute industries who persuade you into buying something you don’t need, well, we should probably get the inquiry rolling into the entire retail, hospitality and travel industries as well.

Living beyond our means is a condition we should try to avoid wherever possible. If a deal sounds too good to be true, it usually is. And finally, be critical when it comes to your wealth.

In doing this, we should consider the role banks play in our society and in our investment portfolios. Vern Gowdie’s book, The End of Australia, can aid this process. It’s the perfect resource for Australian investors who are sceptical about our current financial climate and who are looking to invest wisely in these volatile conditions. To learn how to gain access your copy, click here

This week in Markets and Money

The backlash against Facebook and Cambridge Analytica continued in full force this week. After exploiting the data of 50 million Facebook users for marketing purposes, many believe that Cambridge Analytica grossly violated privacy regulations and undermined the democratic process. But as Selva argued on Monday, utilising data in this way is precisely why Facebook is valued at US$460 billion. And as consumers, we need to decide whether the service social media provides is worth the cost of our data.

To learn more about this story, click here.

While everyone has been preoccupied with the threat of a trade war between the US and China, there’s been a number of developments in the crypto world. Twitter has just joined the list of companies who have banned ICO and crypto advertising. And the largest crypto exchange, Binance, has just moved from Japan to Malta. As Selva noted on Tuesday, despite the internet backlash, a number of nations are becoming more accepting of cryptos. And this is good news for investors…

To learn more, click here.

On Wednesday, Selva wrote that China has just released their first ever Yuan dominated oil futures contract. Not only will this give China more pricing power, but it will establish the Yuan as a direct challenge to the US dollar. And with growing tensions between the US and China when it comes to trade, this is a big deal.

To find out why, click here.

The US dollar has reigned supreme for decades now, unchallenged by any other currency. As oil is also priced in US dollars, or Petrodollars, this has further reinforced the currency’s dominance. But as Selva wrote on Thursday, China’s introduction of Yuan backed oil futures could radically change this.

To learn why the Yuan could overtake the US dollar, click here.

On Friday, Selva discusses the current economic situation in Venezuela. People have left their wallets at home, and are instead using plastic bags to transport the ridiculous quantities of Bolivar, Venezuela’s currency, to shop cashiers who don’t have tills…but scales. But craft beers, and locally made rums, are coming to the rescue.

To learn more, click here.

Until next week,

Katie Johnson,
Editor, Markets & Money

Katherine Johnson, usually going by just ‘Katie’, is a member of Port Phillip Publishing’s editorial team, as well as the Editor of the Saturday edition of Markets & Money. Katie works with all of your editors to maintain the quality of their research and analysis. In her Saturday Markets & Money articles she specialises in cryptocurrency and technology stories, and brings you a recap of the week from your other Markets and Money editors.

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