TERRY MCCRANN

THE executive reshuffle at National Australia Bank can be overplayed, but it does point to the earthquakes that are going to rock our financial system and our four big banks in particular.

Andrew Hagger is not falling on his metaphorical sword and giving up his multimillion-dollar salary as the (inadvertently revealing) “chief customer officer, consumer and wealth” to pay the appropriate penalty for all the inappropriate behaviour revealed, or dragged out of him and NAB, at the royal commission.

Yes, clearly that played a part, but the broader explanation for his departure – in those time-honoured reality-TV words – was that it was “time to go”.

A big slice of the business he was responsible for was being sliced away from him and the bank into a separate company.

True, a big but not the only driver of that “slicing” was the need to respond to the RC. So-called “wealth” no longer sat well (indeed, it never did) inside the bank.

The NAB chief executive officer, “Energiser man” Andrew Thorburn, wanted to embark on his third major executive reshuffle (in just the four years he’s been CEO).

The central element of that reshuffle was to move a former – seemingly good – retail politician in former NSW Liberal premier Mike Baird into the position of the bank’s top retail banker.

We will have to see how successful – seemingly or actually – a retail pollie can be at retail banking.

As that would have quite literally left Hagger with an office but no job, he either had to be reshuffled into another office or out the door. As I said, it all added up: time to go.

So, the really big thing the move – and the underlying reality of the expelling of so-called “wealth” – points to is just exactly what is going to happen to both bank executive salaries and incentives and even the banks’ underlying profitability and growth prospects.

The whole structure of incentives has to both change and be reduced.

There is no way the big banks can return to the levels of incentives “once the dust has settled”. But exactly the same applies to core salaries.

Australian bankers were paid ridiculous sums for running what were essentially building societies – 60 per cent of their profitgenerating business was lending to people to buy houses. And a big chunk of the rest was – is – lending to small and medium-sized businesses secured against their homes.

Now let me add, it was great that our banks didn’t follow all the big global banks into all the exotic lending and financial wheeler-dealing that both caused the GFC and sent most of those big banks broke.

But the salaries they paid themselves for home lending were ridiculous.

EVEN more so were the bonuses they pocketed for the growth delivered to them both by population increase and Chinese investment in our property market, combined with compulsory superannuation pouring in tens of billions of dollars every year.

Until that is, the industry super funds and SMSFs started being “difficult”.

Countering this though, you should be careful at getting what you wish for.

All the above said, we have had an excellent banking system, providing seamless and riskless service; a place for you to invest your money – both in bank shares and bank deposits; and to get a home loan.

Are you really ready for a world where you can’t take those for granted?

Many of you may not appreciate how fundamental bank shares have been to the share market and so to your super.

No, of course, that does not mean the banks should just be given a “free pass” on their behaviour. That world has gone; the banks are going to lose billions of dollars of income that they used to either take for granted or inappropriately (or worse) granted themselves.

It will mean they will be less profitable. But it will also mean they will charge more for specific services. If they can: because on top of all this, they are facing the same digital tsunami that everyone else is.

They are going to have to face their tsunami with a whole new level of increased and much more intrusive regulation. They might also be facing all this just as the “golden goose” of property stops laying its eggs for them.

Ten years ago, our banks were never really in danger from the GFC. It only required the Reserve Bank to provide “back-up” against nervous, foreign financiers.

Next time round, things mightn’t be so benign.

Oh, and last but not least: that opening reference I made about an “inadvertently revealing job description?” Sorry Andrew – either or both – but in the wake of the RC, many might be inclined to play some cheeky word anagrams.

Maybe the head of a big bank retail arm could be better titled “chief officer for consuming customer wealth”. Let’s hope that should be “could have been”. END COMING FOR BIG FAT BONUSES T’S not only bank salaries and bonuses that face a more sober, more realistic future. The same cold wind is going to come blowing across all executive ranks.

One of the huge – side – lessons from the royal commission is the total misalignment between the incentives driving, and delivering, big bonuses which usually far, and I mean far, exceed the actual salary and the outcomes for shareholders.

Wesfarmers yesterday provided an instructive (non-bank) case in point.

Former CEO Richard Goyder lost all his bonuses over the near-$2 billion of shareholder money that was burned in the ill-fated Bunnings push into the UK.

That’s to say, he lost them for the one – his final – year.

The big bonuses paid when the damage was being done along the way stayed in his pocket. They should never have been paid.

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