The smiling assassin returns for his biggest hit
ANZ CEO David Hisco felt entitled to claim around $50,000 worth of personal chauffeur and wine storage costs as business costs. So John Key pushed out his friend and NZ's most successful banker to protect ANZ's position and try to avoid a Royal Commission here. Bernard Hickey analyses Key's biggest hit yet.
David Hisco just joined a long list of loyal and often friendly colleagues of John Key who exited their jobs in often surprisingly quick and career-ending ways. It could be said Hisco's exit is Key's biggest yet.
The Former Prime Minister and now ANZ New Zealand chairman became known in his corporate life before politics as the 'smiling assassin'.
Despite an affable and collegial style, Key rose to the top at Merrill Lynch in London as first the currency trader and then the executive able to cut his losses and move on the people and the trading positions that he saw as endangering the number one position of his company or his party.
Repeatedly, while Prime Minister from 2008 to 2016, Key was able to quickly and cleanly cut out people who he saw as having failed or erred, and were dangerous to National's success in Government. There's a long list, and they rarely returned to fight another day.
Richard Worth, Phil Heatley, Kate Wilkinson, Chris Tremain and even Judith Collins were exited or demoted in fairly unceremonious fashion after various controversies or perceived poor performance threatened to distract or hurt National's grip on power. Even his own surprise departure as Prime Minister in December 2016 showed a ruthlessness that was designed to both protect his own reputation as a winner and, he hoped, extend the life of the Government.
Any closeness or loyalty to Key personally did not block or delay any action.
Yesterday's shock removal of Hisco as CEO of ANZ and his replacement with acting CEO Antonia Watson was perhaps the biggest of the surprise exits, especially given Hisco's apparent closeness to Key (Hisco bought Key's Omaha holiday home) and his mana as New Zealand's top banker.
Hisco was arguably the most powerful and influential CEO in the country for nine years and had even been touted as a contender to succeed ANZ's group CEO Shayne Elliott, who is another New Zealander. Hisco took over ANZ in New Zealand in 2010 after a turbulent decade punctured by ANZ's takeover of National Bank and the Global Financial Crisis, when ANZ, like the three of the big four, had to ask for help from the Reserve Bank to fund their 90 day loans overseas when those bank wholesale markets froze in London and New York.
I've interviewed Hisco five or six times over the last decade. He is an engaging, pugnacious and no-nonsense Australian banker who took ANZ by the scruff of the neck and turned it into a powerhouse united competitor within three years.
He moved ANZ's head office from Wellington to Auckland when he realised ANZ needed to compete much more aggressively in the fastest growing mortgage market in the country. Essentially, ANZ ramped up its lending in Auckland through 2012 to take market share off ASB. In the process, Hisco helped fire up the Auckland housing market again from 2012 to 2016.
Hisco then built up ANZ's momentum throughout the country so it was flying going into its branding and computer systems merger with National Bank in October 2012. ANZ remained as the brand, but the two banks combined on the National bank computer system. Bank mergers like this are often a nightmare for customers and an opportunity for competitors to pluck the lowest hanging fruit out of the disrupted banks.
Hisco successfully managed the merger with barely a blip in customer service and market share. He also quietly presided over a reduction in ANZ's exposure to dangerous dairy loans, flicking on some of the weakest lenders to other banks. For example, ANZ let Allan Crafar move his more than $200 million of loans to Westpac before the poorly managed farming group collapsed under a welter of animal mistreatment allegations and effluent treatment fines. Westpac suffered heavy losses in the subsequent receivership and sale of Crafar Farms.
Who pays for the capital cock-up?
But Hisco's reign was beginning to look messy in recent months. It risked destabilising the relatively solid public positions of Australia's big four banks, led in New Zealand by ANZ. Public perceptions of big four's parents in Australia are vastly lower than they are here in the wake of the Hayne Royal Commission that named and shamed all of them for treating customers awfully.
A much less intrusive and public inquiry into bank conduct and culture here by the Financial Markets Authority and the Reserve Bank found the big four here had better cultures than Australia, despite some breaches, but it failed to name and shame any culprits. Effectively, the banks here got off light.
However, the veil was beginning to slip in recent months, particularly around ANZ. The Reserve Bank announced in mid-May it had discovered the ANZ had not been using the correct model for calculating its own capital for five years, apparently due to an internal oversight. This came at the same time as the Reserve Bank was proposing banks effectively double their capital reserves at a cost of more than $20 billion. The Reserve Bank immediately ordered ANZ to increase its capital by $285 million to $760 million.
The big four banks and the Reserve Bank have been waging a behind-the-scenes battle to soften the blow of the capital upgrade, which the Bankers Association (which also represents the smaller banks) has argued could cost consumers and businesses $1.8 billion a year in extra fees and interest costs if the banks kept their currently high profitability. The conflict between the Reserve Bank and the banks has intensified in recent weeks, with the Reserve Bank accusing some on the other side of over-stating their case. The battle is beginning to hit the reputations of both sides.
This Roy Morgan survey of New Zealand bank net promoter scores, which is often seen as the best measure of customer satisfaction and all around reputation, showed the scores of ANZ and BNZ falling an equal-worst 8.1 percentage points to at or below the bank average over the last year.
ANZ announced on May 30 that Hisco would take extended sick leave. His colleagues confirm he was sick, although no details were given and Key said the stress of the board knowing about the expenses dispute for the last three months may have worsened that.
Hisco has always appeared a gregarious and robust character when I've interviewed him. He was popular inside the bank and widely recognised as the head of New Zealand's banking scene, rivaled only perhaps by the Reserve Bank Governor. ANZ is also enormous, relative to the size of the New Zealand economy. Its loans and capital are worth $163 billion, or just over half of New Zealand GDP. ANZ also produces almost $2 billion of profit each year, making it New Zealand's most profitable entity and its biggest private company.
Hisco represents Key's most significant engineered exit, if the metrics measured are assets, profit and his own salary.
He was pushed
This is where it gets interesting.
Hisco's salary was worth around $3 million last year and he is walking away with a year's salary in advance as a settlement. But he is also walking away without over $6 million worth of ANZ shares forfeited as part of his exit deal.
Why would Hisco leave of his own accord and not repay around $50,000 worth of expenses when he had so much at stake in agreeing to a quiet retirement? ANZ's statement made clear Hisco didn't agree with the board's view that he was not allowed to claim the expenses for personal use of a chauffeur and wine storage in Australia.
Key told yesterday's news conference Hisco believed he had a verbal agreement with a previous ANZ group CEO. Key would not say Hisco was pushed or jumped, but it's clear from the public disagreement and the length of the 'sick leave' that Hisco was pushed.
Protecting the brand and its assets
Key's decision makes sense from an ANZ group point of view, and for ANZ's brand in New Zealand. If the news of Hisco's deliberate and repeated mis-characterisation of personal expenses had gotten out and he had remained then customers and staff would have revolted, not to mention an already grumpy Reserve Bank.
Key could not afford to leave Hisco in place, and his own position as ANZ New Zealand chairman and as an ANZ Group director is also now being questioned. Former BNZ Chairman Kerry McDonald called on Key to resign to take responsibility for the capital model failure. There are now growing calls for a full Royal Commission here, including from McDonald and Simplicity CEO Sam Stubbs.
The banking union was furious yesterday at what it saw as a double standard, given Hisco was allowed to stay on for three months after the board discovered the expenses issue and is being given a year's salary in settlement
Junior staffer blamed
Key said yesterday a relatively junior staffer was responsible for the model failure. Quite rightly, the Reserve Bank would question why the CEO and the chairman did not know
Key's removal of Hisco was the least he could do to protect the bank, to show leadership for the big four banks' reputations here, and to protect his own position, especially in the eyes of the ANZ group board, which he is a member of.
John Key faced some big calls as Prime Minister. He just made his biggest one yet in his directorial career. It remains to be seen whether it's enough to save his own position, ANZ's position, and to stave off a Royal Commission here.
Prime Minister Jacinda Ardern seemed pretty relaxed about Key staying on as ANZ chair this morning.
"As far as I can see, the issue's been raised, the board has acted on it, and the CEO's no longer there," she said told Morning Report.
We will see how Reserve Bank Governor Adrian Orr feels, given he has the right to approve or reject directors and chairs of New Zealand banks.