By Gareth Vaughan
ANZ New Zealand's public humiliation of David Hisco, its CEO of almost nine years, is extraordinary.
Despite delivering in spades for ANZ NZ's shareholder for almost a decade, Monday's announcement from the bank and subsequent press conference headed by ANZ NZ chairman John Key has likely ended Hisco's 39-year banking career.
Having announced Hisco was taking extended sick leave in late May, ANZ on Monday said he was leaving the bank by mutual agreement, after his expensing to the bank of chauffeur driven cars for personal use and wine storage dating back nine years came to light. In the media conference Key said this had cost ANZ tens of thousands of dollars, and was revealed in a review implemented by Shayne Elliott, CEO of ANZ NZ's Australian owner, the ANZ Banking Group.
Hisco moved from Australia to take the ANZ NZ helm in September 2010, succeeding Jenny Fagg who quit the bank to fight cancer. At the time ANZ NZ's banking operations were split between its ANZ and very popular National Bank brand, despite the National Bank having been purchased from Britain's Lloyds TSB as long ago as 2003. The two banks were also on separate IT systems and were headquartered in Wellington.
That all changed with the risky but highly successful 2012 culling of the National Bank brand and moving of ANZ and its customers on to the National Bank's IT platform. Hisco also moved ANZ's HQ to Auckland, where he aggressively took on ASB, the former Auckland Savings Bank. In October 2012 a combative Hisco told me ASB was "an Australian bank like us" with "no territorial rights over Auckland."
The highly successful ANZ-National Bank merger, in the face of rivals' unfulfilled expectations that it would enable them to pick off disgruntled National Bank customers, allowed Hisco to boast in ANZ NZ's recent half-year financial results that; "Since 2010 we have maintained our leading market share with no change to our cost base."
ANZ NZ, under Hisco's leadership, has certainly done a sterling job for its shareholder. Net profit after tax under Hisco's tenure totalled $13.438 billion up till March 31 this year. September 2018 net profit weighed in at $1.986 billion, way up from $867 million in the September 2010 year. Dividends paid during Hisco's tenure totalled $13.521 billion, albeit some of this was offset by share issues to its parent.
Indeed ANZ NZ has been a star performer within the ANZ Group over recent years, with several members of Hisco's executive team including Craig Sims, Fred Ohlsson, Graham Turley, David Green and ex-UDC Finance CEO Tessa Price promoted to group roles. Hisco himself has held group executive roles for Asia and the Pacific. As Hisco departs ANZ NZ has 31% of the NZ mortgage market, 33.8% of the household deposits market, 26.5% of the credit card market, and 23.3% of the KiwiSaver market.
Upon Monday's news of Hisco's departure The Australian Financial Review was quick to say it heralded a "brutal new age of transparency" in Australian banking following last year's Royal Commission. Led by its chairman David Gonski and Elliott, the ANZ Banking Group "has very deliberately called out board concern about the characterisation of certain transactions following an internal review of personal expenses," the AFR suggested.
Whilst it's true that conduct and culture at banks is in focus on both sides of the Tasman as never before, the Financial Markets Authority and Reserve Bank having also reviewed it in NZ, this is primarily about banks not screwing their customers. Who are the ANZ customers harmed by Hisco's alleged indiscretions?
Thus it's hard not to wonder if there's more to Hisco's departure than publicly claimed by ANZ. Whilst undoubtedly a bad look, Hisco's alleged conduct is hardly the crime of the century. Especially not for a CEO who must have met his shareholder's financial expectations over almost a decade, and who has worked for ANZ for 39 years.
If Hisco's use of chauffeur driven cars and storing of wine at ANZ's expense were the only factors behind what we're told was a mutually agreed departure, then why wasn't some agreement reached that didn't require him to be publicly thrown under the bus?
A few tens of thousands of dollars is not a material sum for ANZ or Hisco. To put this sum in context on Monday Key said Hisco was receiving a payout of about $2 million but giving up $6.4 million of equity. Key also said Hisco believed he had the authority to use the cars and store his wine at ANZ's expense, and ANZ NZ's board accepts that. Thus surely his pay could've been docked so ANZ was reimbursed. Couldn't ANZ have met its conduct and culture expectations without publicly humiliating a long serving, successful and loyal executive?
ANZ's revelations, but vagueness, on Hisco's health issues has also left questions unanswered. Now, having been hung out to dry publicly by ANZ, it's hard to see the 55-year-old Hisco getting another senior executive role at a major company, should he want one.
Thus although Key says Hisco's departure was by mutual consent, it sounds like he was sacked.
Key says there's nothing in Hisco's severance deal with ANZ that prevents him from speaking out about his departure from the bank. It will be fascinating to see whether he does so.
Hisco's tenure as ANZ NZ CEO was certainly blotted recently with news the bank was being censured by the Reserve Bank, which also revoked ANZ NZ’s accreditation to model its own capital requirements for operational risk, citing a persistent failure in controls and the director attestation process at the country’s biggest bank that dates back five years. The attestation failure is a big deal, as detailed here. However in Monday's press conference Key blamed a junior staffer for the events leading to the Reserve Bank censure.
As detailed by interest.co.nz, the Reserve Bank is also separately making ANZ NZ increase its risk weighted assets by more than $10 billion after reviewing its capital adequacy on farm lending and residential mortgage lending. This move comes with ANZ NZ having for years carried less capital against these loans than rivals ASB, BNZ and Westpac who also use the Internal Ratings Based bank capital approach. There is a feeling that some chickens are coming home to roost on the bank capital front for ANZ NZ thanks to a more proactive Reserve Bank. Combined, the two capital-related run-ins with the Reserve Bank mean ANZ NZ's minimum regulatory capital requirement rises by more than $1 billion.
Nine years is a long tenure for the CEO of a major entity such as ANZ NZ. And perhaps after a long run and with major changes like the Reserve Bank capital proposals, open banking and greater conduct and culture expectations, it is time for Hisco to move on. But the scale of his public humiliation doesn't fit the crime he's said to have committed. It will thus be fascinating to see if more emerges on the reasons for, and timing of, his departure.
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29 Comments
The departure by mutual agreement means that they sat down with lawyers on each side and arrived at a deal. Presumably with clauses that mean that Hisco doesn't spill the beans on other issues that would drag down the entire board.
The junior staffer trick doesn't work for the IRB issues. Why would a junior staffer be in charge of something as serious as IRB. There is a failure at a management level and at a board level for not carrying out their responsibilities.
Disagree with your assumption in your first line.
There can be mutual agreement to part ways when there is no deal. (Ask many divorcing couples :) )
What did Hisco gain out of any deal? Hisco has lost his job, $6 million in equities, and and his reputation left in shatters. The only things Hisco got that ANZ/Key referred to was what is in his contractual agreement and statutory provisions.
Rather than protecting the Board's interests, such circumstances leaves the risk of possibility to bring down the Board if Hisco so chooses.
The term 'by mutual agreement', probably does mean that there where lawyers. Its a term used limit ongoing liability. Usually it would be followed by a polite reason for the exit 'health concerns' and a list of agreements to settle some kind of dispute that will be ended by an agreement for the deal to remain strictly confidential. One of the key things Hisco may have gotten was an agreement to not prosecute.
I find it slightly hilarious that Key is delivering the news given he lied to the nation about the GCSB bill legalizing collection of email content.
Gareth, it's just all part of the decade-long trend to ever more sensationalist yet shallower 'news'.
Yes, to be sure, Hisco's 'business expenses' were personal consumption. But 'tens of thousands' against a salary in the millions, and a group profit in the billions, is piffling.
What it exposes (yet again, like we need the reminder) is the utter tribalism which has infected our public discourse. Hisco is painted as the 1%, so us 99%'ers can point and laugh (or, perhaps, for some deluded souls, consider acquiring a pitchfork, lighting that torch, and renting a mob of like-minded deep thinkers). Yet, as you point out, ANZ's record over Hisco's tenure is actually positive, even actually laudable.
Jeffrey Tucker has a great article about this divisiveness in public discourse, and notes, sadly, that
The new additions to the canon include anti-harassment rules based on any of the above categories but that term has no clear definition, no evidentiary rules, no guidelines for compliance, and no statute of limitations. What it means in practice is to have as little human contact with others as possible, especially in a business environment. Literally, anyone can be accused and play-it-safe companies would rather toss out the targetted employee rather than risk bad public relations and an unwinnable lawsuit. The toll adds up daily.
Quod erat demonstrandum.....
Hi Gareth
I hope you don’t mind me re-posting this interview you did with Mr Hisco in July 2016. I think it shows a man who is aware that there are major problems building in the system. The issues of over leverage by Mum and Dad’s and the need for regulation, he’s almost pleading for it. But recognised that his bank can’t stop (because of shareholder demands) unless others do the same. It’s a great interview (not watched by nearly enough people). There are far bigger issues here beyond cars and wine which is a great big dummy pass by ANZ that will get everyone in the press running in the wrong direction. Great click bait to get the disenfranchised majority focussing on the wrong issues for a day or so before they go back to married at first sight Australia.
You know the guy, pick up the phone and let’s get him back on camera to discuss what’s really going on.
Interesting how he talks about the inflated housing market at a few points there, in relation to what can be done. I wonder if some of the board disagreed with him about people borrowing too much from the banks for mortgages, in terms of perhaps hurting the bank's short term profit outlook? He's definitely warning that it's a problem. About 14:20, indicating the NZ market is in a bubble, he also states “Everybody needs to look at everything. If you can make a contribution, any type of contribution, it may help us let the air out of the balloon slowly, rather than burst the balloon." I doubt Sir John would've liked such talk, as he denied there was a bubble back then.
Hi voiceofreason
The board disagreeing ‘about people borrowing too much from the bank’ is actually an incorrect term. Banks don’t lend money, theirs or yours, nor do they transfer it to your account. Banks are in the business of purchasing securities, your security to repay, which is essentially what a loan contract is. Money is created on a promise the promise that you repay. Deposits are simply book keeping entries of your commitment, on the asset side of the ledger.
JW
What about the Auditors of ANZ ? Why did they not question these expenses and how they were accounted for in the books of the bank for so many years ?
Also, does the Capital attestation regime require any input or certification by the bank's Auditors ?
And the fact that they are not asking for these tens of thousands of dollars to be repaid shows something is fishy.
Not a good look for NZ Banking and the Regulators (too cozy with the Banks ?)
I've had lengthy exposure to expense claims and reimbursement processes at senior level within large financial services institutions. Financial control officers would have been aware of what he was doing. People higher up the food chain would have authorised his expenses and must have turned a blind eye. If any expense category was irregular in configuration or disproportionate in size relative to his peers in Aussie, audit bells would have sounded. The ANZ brass in Oz is letting Key take the heat and lying low but it is their control processes and systemic governance failure that is as much to blame and they too should be under the blowtorch. Unless of course they were under instruction to let it slide. There has to be more to this story as it's highly unlikely that Hisco has been 'let go' just for the comparatively minor expense rorts cited.
There's nothing about this that looks right. In the scheme of things the expenses were minuscule, he hasn't had to repay them and there seems to be some doubt as to whether he had a verbal agreement that they were claimable anyway.
Why did they not simply say he'd gone for "health reasons"? Why destroy his reputation in this way?
Unless of course there's some real s**t hiding in the shadows and when that comes out the board can go "oh, that all happened on bad David's watch, we're squeaky clean and trying to clean up the mess".
My first reaction was there has to be more to this, you simply do not deal with the CEO of an entity of this magnitude and his tenure in this fashion. There was sufficient ambiguity (9 years) to simply ask him to repay the amount in question and announce his retirement. This leaves something undisclosed or the 2 recent regulatory breaches. Two other observations, don't feel sorry for him as undoubtedly he torched good people on his way to the top and John Key discussing this on the radio last night, what a clown.
1. $50,000.00 - It ain't minor. Unless you think the upper classes of executive are superior beings who don't have to live to the same standard of behaviour as we do. I think they do. He should have gone if it was $5.00
2. He still gets off lightly with some good benefits, because he is one of those superior beings . If this was a frontline teller they would be out the door that day, no pay at all. And potentially the police would be called.
3. There is an interesting hint that he believed he did nothing wrong. So believes he is entitled. That's a problem for a banker looking after our money.
4. Why blame John Key. He is the newby there and potentially is the one dared to confront the issue when others had not.
5. I still think the banks are rorting us. Especially ANZ. And their behaviour over new capital requirements has been quite sleezy. We need to crush their power, over charging and risk for our entire nation. Break them up.
Good summary Gareth. Basically, the expenses claimed were a misunderstanding, and as a decent employer Hisco should have had the opportunity to rectify the issue by repaying the the excess claim. Hisco almost certainly had some sort of tacit endorsement to his approach to the wine, and the chauffeur is a nothing. Theses guys private lives are all about profile, connections and marketing wherever they go, so he legitimately would have though it a work expense. It’s not as if it was invisible either.
Key said this was part of an ANZ Group investigation, and the board were not Hiscos employer - Shane Elliot in Australia was. Key was probably fronting a group decision. Certainly, the Australian banking enquiry would have been influential context, but I’m still left wondering how Hisco fell out with Elliot, and why this knifing was followed through on.
Wholly agree, way more going on here.
It's clearly a "jump or you'll be pushed" type moment, but the voluntary jump was definitely assisted by some momentum because they've literally eviscerated the guy on the way out.
It smacks to me of a board that really wanted him out and a 'find some dirt we can use' type directive to make it happen. There's no way a CEO would be walked on such a pretense - he could very easily have just paid it back taken a slap on the knuckles and carried on - heck it sounds like it was more of a misunderstanding than anything else - he thought he had authority to do it, and they don't actually disagree with that (which means probably, legally, he's covered).
This is a hack job, but the reasons for the hack job are very unclear. Strikes me that there's some blackmail behind the scenes - he didn't visit China or Russia recently did he? Common for to be picked up by pretty girls in such locales and recorded doing things that he might not have at home? "Take a walk or your wife sees the video"?
There's some sort of leverage at work for sure.
ANZ had a really rotten culture under ex-CEO Mike Smith, who himself was "allegedly" shot by a hooker in Brazil while at HSBC. Particularly in the wholesale bank where there are plenty of stories I couldn't print (not in NZ though), but they'd make your eyes water!
It strikes me that Key and ANZ management really need to explain quickly what really is happening at their bank with Hisco's departure. If depositors start thinking they might be safer in another bank because ANZ is lax with its controls both in minor matters (Hisco's expenses) and major ones (risk-weightings), then ANZ could have a real problem...
More on the expenses saga. Proving to be expensive for the bank's reputation ? Some action by depositors may be warranted ?
https://www.stuff.co.nz/business/113599166/anzs-former-boss-david-hisco…
While I have no time for the extortionate amount made by these banks and their Leaders, I have some sympathy for the proposition that he has been treated rather harshly. PROVIDED THAT THESE ARE THE ONLY THINGS THAT HE HAS DONE. These could be just the reasons that can be publicized without doing too much damage to the bank.
Storing his wine collection, - Really, I presume that he is Australian and used to live there. So it seams a reasonable thing to pay for his wine storage over there pending his return after the appointment. Rather like storing furniture while taking up a temporary appointment.
The chauffeur driven cars. You would have to know the circumstances. It could be quite reasonable while entertaining a very important client, but totally unreasonable to go round the corner to get some milk. Even if it were the later, if the boards over-site and systems were adequate it would have been more appropriately handled, early into his appointment, by a quiet warning.
The more I think about it, the more I suspect that there is something far more significant and the excuses given are just a smoke screen.
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