CEO Andrew Thorburn – Interview with Neil Mitchell, 3AW


NEIL MITCHELL: In the studio with me is the Chief Executive of the National Australia Bank, Andrew Thorburn. Good morning.

ANDREW THORBURN: Good morning Neil.

MITCHELL: You know people think you’re a bunch of bastards. There won’t be a lot of sympathy for you.

THORBURN: I think what my goal is – and I lead a bank of 34,000 people, I’ve been a banker all my career – is to do the right thing for our customers and our shareholders and build a safe, strong bank that’s growing and serving customers well.

So look, you get flack but you’ve got to keep focused on customers and shareholders. That’s what the bank is all about.

MITCHELL: So what’s your share of the $1.6 billion?

THORBURN: That’s actually one of the things that we need to work through. Some of our people are with Treasury today. This has come out hastily. We’ve been told the total for the banks – major banks and Macquarie – is $1.5 billion. There’s very little detail. It’s on a portion of our liabilities but there’s some deduction. So it’s quite complex and I can’t answer that question for you right now Neil, and I think I should be able to, but I can’t.

MITCHELL: We’re talking about several hundred million obviously, but maybe as much as $400 million, by anyway hundreds of millions of dollars. Is that really going to make such a huge difference to your bottom line? Is it really going to hurt that much? I mean the combined profits of the banks are heading to $30 billion – $15 billion for the first half.

THORBURN: Neil I think one of the key things that we’re wanting to convey is that a tax is absorbed by people. The bank is made up of staff, customers and shareholders. And with customers we have borrowers and we have depositors. So any tax is borne by people and in this case it’s going to be borne by those people. The second thing… so a tax can’t be absorbed. It must be borne by people.

The second thing is that the major banks pay $11 billion of corporate tax every year at the moment. One of the biggest contributors to the tax pool. We’re now being told overnight – without any consultation and to your earlier point, without knowing really the detail – that that number’s going to be another $1.5 billion. So we’ve had a 10 per cent increase in the tax that banks are going to pay without really any thought as to is it really needed and how is it going to work. So it’s not good policy and it’s going to be borne by those people I talked about.

MITCHELL: OK, the way it could affect people is clearly, it could affect your staff. Will you cut staff?

THORBURN: Our industry’s going through tremendous change and we’ve been having to reduce staff because people are using different sorts of technology and channels now, but I don’t think this will make a significant difference.

MITCHELL: Okay, maybe will it affect pay rises?

THORBURN: Yeah, look, the first thing in staff pay rises, training, development, investment in new technology, regulation, new digital – they’re the things we have to invest in so that puts the pressure on that.

MITCHELL: And as you say 34,000 staff. There’s one area that’s possible. Another area’s the customers. Will it affect fees or interest rates for customers?

THORBURN: Well, we need to work through the detail here.

MITCHELL: It’s a possibility though?

THORBURN:  Absolutely, it’s got to be borne by customers or shareholders and maybe staff. That’s the only three groups that we can work with.

MITCHELL: If you’re going to affect customers, how will it happen though? Will it be interest rates?

THORBURN: It’s got to be either… we pay depositors interest, we charge borrowers interest, so there are rates. There are all sorts of different rates depending on the customer. We have fees. So, that’s the banks’ revenue.

And of course, when the bank makes a profit 80 per cent of that profit goes right back to shareholders: mums and dads, 589,000 in the case of NAB. People who are living in Thornbury and Bankstown either directly owning a few hundred NAB shares or through their super funds. So that’s who this is going to hit.

MITCHELL: There were some claims yesterday that – and we’ll get to that in a moment – that some rates had already gone up in anticipation. Is that right?

THORBURN: I don’t think that’s correct, no.

MITCHELL: OK. Alright, we’ve talked about staff, we talked about fees, mortgage rates or interest rates for customers. The third area, as you quite rightly say, is the possibility of the share price being affected because if you take it off the bottom line your profitability’s affected. And that affects superannuants, shareholders; this does have significant effect. But when we’re talking about these figures, realistically is this new tax big enough – destructive enough – that it will actually bring the share price down? Will it actually affect the share price?

THORBURN: Well I think you’ve already seen that happen, Neil, since …

MITCHELL: Well that was in anticipation, though. It’s recovered a bit now.

THORBURN: Yes, but I think there’s somewhere between $15 and $20 billion being wiped off the market capitalisation of the banks since this was announced. So you can see the market is concerned about the impact on banks, on profits potentially, on dividends. And as you say our shareholders are people. They’re just normal people who actually own some shares in a bank and they’re wanting to see the bank be profitable and dividends distributed. That’s where our profits go.

MITCHELL: Now, I’m no actuary or accountant, I can’t count very well but the first half, the joint combined profits were $15 billion. If you were to apply the $1.5 billion tax, you’re talking about a $700 million or $800 million cut to that first half profit, combined profit of $15 billion. You’re not even under $14 billion. Is that really huge? I mean when you’re looking at the size of the profits, you’re not really losing that much are you?

THORBURN: When you say you’re not losing that much, the bank is people. The bank is customers and shareholders and shareholders are normal people. So the people who will lose out of this, Neil – it’s not some vacuous sort of concept – it is real people.

If we have less profits – if that happened as a result of this – less dividends would be paid to our shareholders. And of the profit we make we pay about 80 per cent franked dividends to shareholders. And most people in Australia now are owning shares in the banks because they’re so significant companies and help the economy grow. So the people who will be impacted are normal people who own our shares.

MITCHELL: There aren’t many blue chips, I agree with that. But you’re not going to cop a cut in profits are you?

THORBURN: The goal of a bank is – and any company – is you’ve got to balance customers and staff and your shareholders and that’s a very… that’s an artful competitive dynamic. So the main point here is though: when you have $6.2 billion that the banks are going to pay over four years, when you take that out of the economy it’s got to have an impact. And really, the Government’s saying they can use that money better than the bank can for its shareholders.

MITCHELL: The Treasurer says you’re getting company tax cuts anyway.

THORBURN: They’re a very long way ahead and I think we don’t classify at the moment as a small business.

MITCHELL: (laughs) At the moment …

THORBURN: The point is too that I think we need to get back into surplus but we need to do that properly. Not through a large tax on banks who because they can pay are being targeted. It’s got to be done with proper review of expenditure and a proper review of the revenue of the government and this is not the way to do it.

MITCHELL: Individuals have been paying more. This is when the budget repair levy, two per cent, so high income earners have been paying more to repair the budget, why shouldn’t high income-earning companies?

THORBURN: We’ve had a 10 per cent increase in our tax take, if this is passed, just in the first year, and secondly the bank is made up of people, Neil. So the people who will pay for this tax are customers or shareholders – normal people who are on the call today. That’s who is going to pay for this tax. Because a tax is borne by people.

MITCHELL: There is also talk of legislating against executive bonuses. How do you react to that?

THORBURN: Well in the Budget – I know we’re talking about the bank tax, but there were actually quite a few other initiatives the Government put forward – and this is one of them. I don’t think they said that bonuses will be legislated against, but I think they’ve given some additional powers to the regulator to monitor those and for them to be deferred for longer periods.

But I think our industry, or our profession, is helping our economy grow. We’ve got some very challenging times ahead as a country, Neil. And our bank – bankers – should be focused on that, not on having to go through more reviews. You know we’ve had over 20 reviews in our industry and now we’ve got a couple more and more compliance and administration. Now some of that’s needed but it really has become very burdensome and the cost of that, again, is borne ultimately by our shareholders.

MITCHELL: You mentioned the reaction in the market even before the Budget was brought down. That would seem perhaps there had been a leak and somebody’s responding to that leak. Does that concern you?

THORBURN: Yes, absolutely. The market… there is a very clear disclosure requirement from companies about releasing to all shareholders at the same time, so everyone has perfect information. The first I formally heard about this was about 7pm on the night of the Budget when the Treasury Secretary phoned me to tell me. During the day there’d been speculation, but that is concerning if that’s happened.

MITCHELL: You must have been aware of the trading that was going on obviously?


MITCHELL: And did you think why?

THORBURN: Yes and… but I think now we’re just dealing with the implications of it and trying to work through why it happened and how it happened in terms of the tax.

MITCHELL: Does it need to be investigated as a possible leak?

THORBURN: Look I think I’ll leave that to the proper authorities, government and whoever else would do that.

MITCHELL: Is this all going to settle down? I mean, as I say… and you well know banks are not well respected by the broader community. You’re seen as greedy and self-serving and the rest, and people will be saying they’re making a lot of noise because it’s hurting them. Is this going to settle down and you’ll cop it and life will go on and in six months we won’t even notice. Or has it got the potential to cause serious long-term problems?

THORBURN: The main point we’re wanting to engage in now is to have a conversation, a dialogue, to say you can’t introduce a tax like this of this magnitude at such haste and not have unintended consequences. The people who are going to pay for the tax is not the bank: it’s customers and shareholders of the banks who are normal people and we have to think about that. Those are the people who pay that and absorb that tax.

The second thing is we have to say surely our country deserves more longer-term leadership towards getting our budget in order than a last minute, hastily arranged, significant tax on a few companies who are soft – apparently – and can afford it. I don’t think that is good policy and I think the dialogue we’re trying to have here is to say that’s not good enough and it must be better. Our people deserve better leadership than that.

MITCHELL: Do you think other industries are in the gun?

THORBURN: I think this is one of the consequences. You wake up and all of a sudden there’s a big tax slammed on the banks which shareholders and customers pay for. Who’s next? And I think this …

MITCHELL: Well, who’s as profitable as you?

THORBURN: This is the point that there’s going to be other companies, listed companies, who are profitable. Is it miners, is it retailers – who is it going to be? Anybody who’s profitable could be in the gun for a random tax. And once again, that tax will be paid for by people who are their shareholders and their customers.

MITCHELL: Are you surprised to see this from a Liberal Government?

THORBURN: I think I’m surprised to see it from any government, to be honest because the banking sector is so crucial to the strength and viability, and the growth of our economy. And the tax that any government brings down, of any persuasion, we’ve just got to remember it’s borne by people – customers and shareholders. It’s not borne by the company.

MITCHELL: What’s your reaction when you’re told to “pony up”, “cry me a river”? This sort of stuff.

THORBURN: I think we have to lift the conversation here. We can’t make it about personalities and chipping away. People want a plan, people want unity. They want to see the Government and business leaders working together for the betterment of our country. So our focus is on a couple of key points. You can’t put out a massive tax without it having unintended consequences and that tax is going to be borne by people. So I think we’ve got to get focused on the issue.

MITCHELL: But the various governments have been telling us for a long time, quite rightly, that the economic stability of the country to a large extent depends on the stability of its banking industry and we have had a very stable and profitable banking industry. Whenever there’s been complaints about profits, that’s the message we’ve got. We need strong banks. Does this threaten the stability of the industry?

THORBURN: I think its the accumulative impact of all these changes and then something like this I think… I mean the banks are strong. The banks are strong: well capitalised, well governed, well regulated and they’re profitable, of which almost all that goes back to normal people. But I think that we do rely… it’s fragile, it’s fragile, and you want the banks to be focused not distracted.

Now, to stability: we import around 30 per cent of the capital that finances our economy from overseas investors. That goes through the banking system. And I think we will find that overseas investors who are financing Australia, they will say this is random. This is shocking, this is a bit concerning when you have a government who can just quickly without consultation put another additional 10 per cent tax on banks overnight. I think that will increasingly be a concern. So that the risk premium – the cost of the money we borrow – could potentially go up as a result of that.

MITCHELL: I’ve got the Prime Minister tomorrow on the program, the first half hour of the program as he regularly does every two weeks. Is there a message for him from you?

THORBURN:  Well, yes, two. Firstly: a tax, Prime Minister, is borne by people, customers and shareholders of any company. Normal folk.

Secondly: let’s work together, let’s look forward. Let’s build a plan that can make a better Australia. I, and we, want to be part of that. Let’s not make this ‘us versus them’ and adversarial. Let’s work together in partnership to make a better Australia, help the economy grow and create more wealth for our people.

MITCHELL: Is it war at the moment?

THORBURN: I think Neil that word takes it to a level that’s aggressive and I think concerning. No, it’s not. Let’s get back to a couple of basic points: taxes are borne by people, banks are profitable. Most of those are distributed right back to Australian people. And, let’s build a long-term tax policy that fixes this properly rather than this tinkering at the edges.

MITCHELL: Thank you very much for your time, I’ll put that to the Prime Minister tomorrow morning at 8:30. Just one other thing, you see Alan Joyce copped that pie in the face. Now you go out and give a lot of speeches in similar sorts of circumstance. Does that concern you? Some people have been laughing, and I thought it was pretty serious stuff.

THORBURN: Yeah I did too, when I saw it. Because I think what we want in Australia is the ability to disagree, to have a debate, to make it professional – not personal – and certainly not for people to be attacked like that. I mean we need leaders, political leaders and business leaders, to be standing up talking with the public and doing that professionally.

And I think that was very concerning, and this is a reflection of, I think, we don’t have the unity in the country and there’s polarisation and aggression and that is concerning. If you look at what’s happened in the US and with Brexit and even in France, I do worry about that growing animosity Neil.

MITCHELL: Thank you very much for coming in. I’m sure we’ll be talking again, because this issue is with us for a while, I think the Government says permanently. Thank you for your time.

THORBURN: Thank you Neil.




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