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Cuffelinks Newsletter Edition 282

  •   30 November 2018
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Tomorrow is the final day of Royal Commission hearings. We have never seen anything like it before, and most senior bankers hope we never will again. Kenneth Hayne will produce 1,000 pages of censures and recommendations in February 2019 that will change the finance industry.

I misjudged what the Commission could achieve, mainly for three reasons. First, I thought it would be more like a court, where QCs defend their clients and produce contradictory arguments. In fact, we heard no defences from QCs after Kenneth Hayne slapped down NAB's counsel, Neil Young. Hayne wagged his finger at Young and shouted:

"You will not give her her answer, Mr Young. You will not. Do you understand me?" 

After that, the bank QCs became almost irrelevant during formal proceedings, as demonstrated in the final round by Peter Collinson, QC for ASIC, who said meekly:

"Can I raise an objection, Commissioner. My friend has put this a number of times. I don't want to help the witness but it's not what the paragraph says."

Rowena Orr simply rephrased the question and continued without missing a beat.

Second, the ability to source internal documents and produce them in hearings without notice generated significant unease and incrimination for witnesses. Context in responses was not allowed. Imagine being accountable for every email or paper written for the last 10 years. There will be a lot more business carried on verbally in coffee shops in future.

Third, the public gallery, saturation media coverage and live television broadcasts placed witnesses in a harsh spotlight that no courtroom or ASIC interrogation could match. 

Exclusive view from the top of CBA

At the end of the hearings where many reputations have been shredded, a member of CBA's Executive Committee for 13 years, Garry Mackrell, gives a fascinating insider view into how the Bank changed over the years. It's a must-read as Garry has little sympathy for imposing formal social objectives on banks, and he believes the talk about culture is rubbish. NAB Chair Ken Henry told the Commission that no board or regulator can 'ensure' risk controls are working. His bank has over 14,000 compliance obligations and he said it will never be fully compliant. 

Tough investment conditions and lessons 

If your portfolio has gone backwards in 2018, you're far from alone. Deutsche Bank tracks 70 global asset classes back to 1901, and a record number of them have posted negative total returns this year, as shown below. The chart also shows 2017 was the best year for a century. 

Proportion of asset classes which have posted negative total returns in each year


This week, Ben Rundle gives six questions to check whether a corporate acquisition is likely to create added value, while Marcus Padley draws on the recent incredible collapse of RCR Tomlinson to show lessons for all investors. Where did a billion dollars go in a year?

Ramani Venkatramani has little sympathy for investors who argue policy such as Labor's franking credit proposal should not be retrospective, and publisher Colin Tate takes a highly-principled position on fund manager conflicts by stepping away from a major award event.

Michael Collins warns large financial institutions that fintechs have more capacity to eat their lunch than they expect, and Olga Galacho reports on surveys of older Australians showing financial advisers must find ways to rebuild trust in the wake of the Royal Commission. 

This week's White Paper from UBS Asset Management is important for all investors looking for the more defensive characteristics of infrastructure assets, highlighting that intense competition in private markets has created opportunities in the listed space.

Graham Hand, Managing Editor

 

For a PDF version of this week’s newsletter articles, click here.

 


 

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