How the banks lost their way

While the royal commission scours the big financial institutions for evidence of misconduct, little light has been shed on when the banks actually started to go awry.

Widespread and in-depth coverage of the royal commission is a public relations nightmare for the groups involved. The bigger risk is one of contagion — the inquiry could tarnish the reputation of the entire financial system.

But FirstPoint Mortgage Brokers and MAS founder Troy Phillips remembers a time when the banks were respected by the Australian community.

“Looking back now, the Australian banks and AMP were the pillar of every country town and major city until the ’90s,” Mr Phillips told Mortgage Business.

“They provided great opportunities, in-house training and good working conditions. CEOs like Bob White at Westpac and Nobby Clark at NAB understood the biggest asset these business had was their staff; they understood banking and what it meant to the wider community.”

So, what the hell happened?

According to Mr Phillips — who cut his teeth in the finance game with Westpac in 1985 before joining NAB — the trouble started back in the ’90s when Aussie banks decided to take a leaf out of the American corporate playbook.

“I believe the rot started to set in the ’90s when Australian banks thought they needed to change the way they looked and behaved,” Mr Phillips said.

“They felt they needed to be sales businesses, ‘bancassurance’ was the buzzword. A squad of slick American CEOs led by Bob Joss [former Westpac CEO] and George Trumbull [former AMP CEO] came into town with their trusty sidekicks. They essentially put the American management model over the Aussie banks, the mantra was cost-to-income, slash staff and branches, we were all mesmerised, they must know better, right? Cool accents and nice suits.”

Mr Phillips said that the banks and their staff fell prey to poor American management models.

“Then came Jack Welch and GE. They had everyone frothing at the mouth for a while, until they didn’t. We are where we are because the American sales and service culture has blurred lines.

“Maybe the deepest flaws are engrained in the current culture, brought about by a couple of generations of leaders who have decided that they too should be rewarded like entrepreneurs without the risk, stab colleagues in the back and engage in unethical behaviour.”

But these issues cannot be fixed quickly, Mr Phillips said. He believes that the banking industry needs “a cultural shift” and the right kind of talent who understand history, who respect it and who can embrace the future.

“That means for many boards and senior management, it’s time to leave the house.”

The royal commission has already taken the scalps of AMP CEO Craig Meller and its chairman Catherine Brenner.

Meanwhile, the Commonwealth Bank of Australia, which has been embroiled in a string of scandals from money laundering to poor financial advice, said farewell to CEO Ian Narev earlier this year.

“The four majors were once seen as the natural lenders to small and medium-sized enterprises in Australia. People took pride in saying ‘we have banked at Westpac for 50 years’ — that’s all gone and so has any trust.

“Words like ‘career banker’, ‘loyalty’ and ‘what about the customer?’ have sadly gone. I know a management consultant can write a paper an inch thick, but most have rarely managed anyone or understand the right banking culture, yet they have been plonked into jobs they don’t have the slightest skill set or aptitude for.

“Their biggest worry is about the next EGM title they can stick up on LinkedIn and on a business card, not the brand, the people, or God forbid, a customer.”

As the late business management guru Peter Drucker said: “Culture eats strategy for breakfast, lunch and dinner”.