18 hours Ago By Bernard Keane
You wonder if Gina Cass-Gottlieb and her team at the Australian Competition and Consumer Commission (ACCC) enjoyed some schadenfreude yesterday when the Australian Prudential Regulation Authority (APRA) delivered another body blow to banking giant ANZ. The regulator had accepted a court-enforceable undertaking from ANZ to improve its performance in a crucial area of compliance and managerial performance and “address ongoing weaknesses in the bank’s non-financial risk management practices and risk culture”. APRA has forced ANZ to lift the amount of non-productive capital that had to be held by the bank by $250 million to $1 billion.
It comes only nine months after Treasurer Jim Chalmers approved the ANZ’s $4.9 billion takeover of Suncorp’s banking arm — a deal the ACCC sought to block on competition grounds. The ACCC argued that Australia’s banking oligopoly was already cosy enough and the merger would just increase the likelihood of coordination among the big players.
In a decision that again illustrated how badly in need of reform Australia’s competition laws are, the Australian Competition Tribunal overturned the ACCC’s opposition. The tribunal has repeatedly overturned the ACCC’s attempts to block mergers, making it probably the most economically damaging institution in recent Australian history, and one of the key entities that helped create the environment for the corporate profiteering we’ve seen in recent years. Thanks, your honours.
Chalmers approved the merger in mid-2024. As we reported at the time , the decision exposed weaknesses in the “national interest” test in the relevant legislation. While Treasury was aware of scandals and misconduct at ANZ — like allegations, still under investigation, of distorting a bond sale — it still recommended Chalmers approve the merger because the scandals didn’t affect the national interest assessment.
APRA has now confirmed that, whatever the legal technicalities, ANZ should never have been allowed to merge with Suncorp. The APRA media release is remarkable: the regulator is worried a “serious prudential problem” might emerge at the bank because of the continuing “weaknesses in the bank’s non-financial risk management practices and risk culture”. The comment, by APRA chair John Lonsdale, is the most serious yet to be applied to a regulatory situation involving a major Australian bank.
APRA’s increase in the level of capital it wants ANZ to hold means ANZ cannot lend it — it has to remain on the balance sheet like a dead weight, penalising its earnings and return on capital. It’s effectively a signal that APRA is so worried about ANZ’s non-financial risk management that it is forcing the bank to take out even more insurance against those problems ending up affecting the bank’s profitability. “ANZ remains financially sound,” Lonsdale said, “with robust levels of capital and liquidity, however problems with the bank’s management of non-financial risks are persistent and prevalent across the bank.
“APRA has seen how long-standing non-financial risk management weaknesses have manifested in material prudential issues at some of ANZ’s peer banks. We have observed some similar weaknesses at ANZ and require these to be addressed as a priority.” APRA imposed a capital add-on requirement on ANZ of $500 million in 2019 and upped it by $250 million last year.
But plainly ANZ did not take APRA seriously enough. The regulator says “in August 2024, APRA announced several measures in response to the serious issues relating to employee conduct and non-financial risk management emerging in ANZ’s Global Markets business. In response, APRA required ANZ to commission an independent review to determine the root causes of the issues, whether they extend beyond the Global Markets business and if the bank’s existing multi-year remediation program would be sufficient to address them.
“The findings of the independent review have lent further credence to APRA’s concerns. While the review noted some improvements in the culture, conduct and risk governance in ANZ’s Global Markets business, it identified root causes that have contributed to the emergence and persistence of risk governance shortcomings. It also cautioned that shortcomings identified in ANZ’s Global Markets business may be present in other parts of the bank.
” Question is, will ANZ ever get serious? It has steadfastly refused to take APRA’s concerns seriously so far — perhaps confident that the legal jokers at the Australian Competition Tribunal and the lawyers at Treasury would wave through anything no matter how badly the bank behaved. Another $250 million might concentrate their minds. But given ANZ’s form, you wouldn’t bank on it.
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