Australia’s Banks were under pressure

Australia and New Zealand Banking Group is one of Australia’s four biggest banks. The four hold about 80 percent of the country’s loans, mortgages and deposits.

Dr. Benjamin Koh felt it was obvious what his employer wanted: to avoid paying the claim of a terminally ill customer.


His employer, the insurance arm of the Commonwealth Bank of Australia, the country’s biggest bank, asked Dr. Koh to check out the customer, who had amyotrophic lateral sclerosis, also known as Lou Gehrig’s disease. “They asked me to back them up and see if there was a loophole to justify rejecting the claim,” said Dr. Koh, then the insurer’s chief medical officer.

The customer’s physician left no doubt. The patient, he said, was on morphine and would be lucky to last even a few days.

Dr. Koh cites that example as one of many that he says showed his employer was systematically trying to refuse or delay legitimate insurance claims. Fired shortly after he complained to its board, he took his accusations public — and added to a growing storm in Australia over the size, power and conduct of the country’s four big banks.

Long politically protected and immensely profitable, Australia’s big banks are now facing the biggest public outcry in a generation. The banks dominate Australian financial life, from credit cards and savings accounts to pensions and business services.

Big banks are under a spotlight around the world. International regulators are weighing new rules intended to put them on sounder financial footing. In the United States, officials continue to warn that big banks there lack credible plans in case of a financial collapse.

Still, Australia stands out. At a time when the world is considering what to do about banks that are too big to fail, Australia offers a glimpse of just how big — and how dominant — they can become.

Politicians from both of Australia’s major parties say the banks have used their position to profit on the backs of the country’s spenders and borrowers. At a gala in April to celebrate the 199th birthday of one bank, Malcolm Turnbull, the country’s prime minister, said, “Our bankers have not always treated their customers as they should.” His government has vowed to increase funding for the local banking regulator and force bank chiefs to appear before lawmakers.

The opposition Labor Party wants to get even tougher. Mr. Turnbull is “now inviting them to lunch in Canberra once a year so he can wag his finger at them,” Bill Shorten, the party’s leader, told reporters. “This is a friendly catch-up, not an investigation.”

The banks have apologized for some infractions but have largely defended their role, citing their stability and their role in the country’s long spate of uninterrupted economic growth.

Australia’s four biggest banks are more profitable than those in the United States, Europe, Canada and Japan, measured by return on stockholders’ equity, according to a study last year by Australia’s central bank. Two, the Commonwealth Bank of Australia and the Westpac Banking Corporation, are each worth more than Goldman Sachs in terms of market value. The other two are the National Australia Bank and the Australia and New Zealand Banking Group. The four hold roughly four-fifths of the country’s loans, mortgages and deposits.

They have prospered in large part because they do business in a small country (No. 56 in the world by population) with a lot of money (No. 12 in the world by size of economy). Given its small size, Australia has long tolerated control of vital industries by a limited number of companies. “We’ve said in Australia, we will live with the duopoly and we will live with the oligopoly,” said Chris Adam, associate dean at the UNSW Australia Business School.

As a result, the banks capture 3 cents in pretax profit of every $1 spent in the economy, estimates David Richardson, an economist who has studied the industry at the Australia Institute, a policy think tank. “One way or another, the banks are making monopoly profits,” he said, adding, “There is no competition in Australia.”

Adding to the sense of public anger, Australian officials extended $11 billion in financing to the banks during the global financial crisis. The banks have also benefited from low rates that some politicians say they are not fully passing on to borrowers.

Australia’s corporate regulator is suing three of the banks — Westpac, National Australia and Australia and New Zealand — over claims that they manipulated Australian interest rates to bolster profits. The government cited a transcript of internal Westpac phone calls quoting the head of Westpac’s treasury department, Colin Roden, telling a colleague, “We’ve got so much money on it we just had to do it, right?”

A spokesman for Westpac said none of its employees had broken the law. He declined to make Mr. Roden available for an interview.

National Australia Bank and ANZ have also denied any wrongdoing. But ANZ fired several traders named in the investigation after discovering what it said were disparaging remarks about women and casual remarks about drugs in employee emails and chats.

Some customers have also accused the banks of selling them products they did not need — accusations that have drawn the attention of lawmakers. They accuse the lenders of giving their employees big incentives to sell products like mutual funds to unwitting customers. “It causes deep conflict within the services arm of the bank,” said Josh Mennen, a lawyer at the law firm Maurice Blackburn, which is suing the bank on behalf of several clients.

Those incentives occasionally led to outright misconduct, according to a parliamentary inquiry. In one case, a Commonwealth Bank salesman forged a couple’s signatures and transferred some of their retirement savings into high-risk shares, contributing to a 65 percent fall in the portfolio and forcing them onto welfare, one witness said. The bank apologized in 2014 for what it said was widespread inappropriate selling of financial products and offered customers free reviews of its financial advice.

CommInsure, a unit of Commonwealth Bank, has been a top target of the Australian Securities and Investments Commission, a securities regulator. The regulator is investigating claims that the insurer used outdated medical definitions to avoid paying claims, pressured doctors into denying claims, deleted medical files and left whistle-blowers exposed, according to the commission’s chairman, Greg Medcraft, a former Wall Street banker.

“The banks need to have a culture their customers can believe in,” he said in an interview.

The day before Commonwealth Bank’s chief executive was due to answer questions from legislators, the bank said it had updated its medical definitions for heart attacks and severe rheumatoid arthritis. The change means that 17 customers whose insurance claims were denied will be paid, and that 38 more could be after further investigation by the bank.

“We have done wrong by some customers in that business and other businesses,” the chief executive, Ian Narev, told a parliamentary committee. “The goal is to put things right.”

The government investigation, and lawsuits by former customers, were largely tied to the controversy set off by Mr. Koh, the former chief medical officer of CommInsure, the insurance arm of Commonwealth Bank.

By the time he was asked to check whether the man suffering from Lou Gehrig’s disease was really sick, Dr. Koh already believed that the company was deliberately delaying claims from terminally ill customers to get out of paying them. “It was distressing for me,” Dr. Koh said, adding that the customer’s physician “was basically reading his last rites.”

CommInsure fired Dr. Koh last year for sending clients’ files to his private email address, a step he said was necessary to document the bank’s behavior. He is suing under whistle-blower protection laws.