In response to concerns over how our financial institutions operate, we recently launched a piece of research on the issue of bank ownership in Australia.
Often consumers who choose to bank with smaller, more independent banks
may, in fact, be banking with one of the ‘Big Four’. The following
examination of who owns the big four (ANZ, Commonwealth Bank, NAB and
Westpac) is the logical follow-on from that initial investigation.
Australia’s big four are not merely big, they’re massive. Humongous.
Their combined assets in 2013 stood at $2.86 trillion—or roughly twice
the size of Australia’s national income.
They are four of the five largest Australian companies by market
capitalisation, together representing more than a quarter of the market.
According to a 2012 report by the International Monetary Fund [
PDF],
the big four controlled 88% of residential mortgages and 80% of
deposits. By contrast, the biggest six American banks held 30% of total
deposits in 2013.
It’s not just banking: the big four own 53% of life insurance
premiums, and account for 57.3% of retail investment funds through
bank-owned platforms. It begs the question: if they own so much of
Australia’s economy, who owns the big four?
Connections
According to a 2012 report by the International Monetary fund, ‘major
banks are highly interconnected, as they are among each other’s largest
counterparties.’ But that connection is far from direct. Part of it has
to do with banks borrowing from each other, rather than owning large
parts of each other.
A study of the Australian bank network by the Reserve Bank of
Australia found that more than half of outstanding authorised
deposit-taking institutions ‘exposure’ in this sense is to the big four.
Because they have so much of the money of the entire system already,
when they need to temporarily borrow, there’s few other banks they can
go to, so they have to go to each other. That’s a very cozy
relationship.
Custodians
It is in fact the same four names as the top four shareholders in
each of the four banks—but it’s not each other. According to the big
four’s annual reports for 2013, here’s who owns ordinary shares:
HSBC Custody Nominees (Australia) Limited: 16.91% of Westpac; 16.83% of NAB; 18.48% of ANZ; 14.80% of CBA
JP Morgan Nominees Australia Ltd: 12.75% of Westpac; 12.03% of NAB; 14.40% of ANZ; 11.57% of CBA
National Nominees Limited: 9.93% of Westpac, 10.14% of NAB; 11.76% of ANZ; 8.5% of CBA
Citicorp Nominees Pty Limited: 4.94% of Westpac; 4% of NAB; 4.15% of ANZ; 4.47% of CBA
“HSBC, JP Morgan, National Nominees and Citicorp all
frequently show up together among the top 5 or top 10 shareholders in
many Australian publicly-traded companies.”
‘Custodians’, by definition, hold customers’ securities for
safekeeping, in addition to offering other services such as account
administration and collection of dividends and interest payments, for a
fee. They are not active participants in decision-making. It would be
wrong to imply that by having a 17% stake in Westpac, for example, HSBC
also has 17% of the vote: as a custodian, HSBC only processes the proxy
votes of the customers for whom it holds the shares—and these customers
could be large sovereign wealth funds, or a board member of Westpac, or a
family-owned business in Sydney. Discrepancies in proxy voting do
occur, and many uneducated investors aren’t even aware they can cast
votes. But in principle, HSBC, in a custodian role, acts only as the
messenger, not the decision-maker.
As a wholly owned subsidiary of HSBC Bank Australia Limited, the
custody nominees business held more than $700 billion in assets. It is
not only in the big four. The sheer size of its investment capital means
that it frequently shows up among the top 5 shareholders for a large
number of Australian companies. In fact, HSBC, JP Morgan, National
Nominees and Citicorp all frequently show up together among the top 5 or
top 10 shareholders. They simply represent a very large pile of money,
all of which has to be parked somewhere.
Unknown
On a different note, however, that 17% stake HSBC’s custodian arm has
in Westpac could, in theory, represent just one person—or four big
investors—buying through a variety of mutual funds, each of which has
HSBC as their custodian. It’s a stretch, and it would have to be a very
rich group of individuals, but it is possible. Unfortunately, it is
practically impossible to track down the identities of those underlying
shareholders through the various financial structures that hold shares
for each other and on behalf of each other.
But can these hidden shareholders control what Westpac does?
The company points out that as of October 3, 2013, there were no
shareholders who had a ‘substantial holding’, i.e., in which “they or
their associates” have control 5% of more of the vote. NAB states the
same. Westpac explains that shareholders such as HSBC Custody Nominees
(Australia) Limited (16.91% of total shares) ‘may hold shares for the
benefit of third parties’—the definition of their role as custodians.
Furthermore, Westpac states it is ‘not directly or indirectly owned or
controlled by any other corporation(s) or by any foreign government.’
But the top 20 registered shareholders held 52.42% of Westpac’s
ordinary shares—and that’s a controlling stake. The word ‘nominee’ or
‘custodian’ pops up in 11 of them. There’s an independent wealth
management group, a closed-end fund, an investment management firm, and
so on. Who is behind the actual shares would be, again, practically
impossible to determine.
But the same names show up among the top 20 for each of the big four banks, with some variation.
“The top 20 registered shareholders hold 52.42% of Westpac’s ordinary shares—and that’s a controlling stake.”
The interconnection between the four banks may be even more
pervasive, if even less direct. ANZ’s CEO since 2007 has been Mr. M R P
Smith—who has been with HSBC for most of his 30-year career prior to
joining ANZ. Since 1978, Mr Smith has held ‘a wide variety of roles in
Commercial, Institutional and Investment Banking, Planning and Strategy,
Operations and General Management’, according to ANZ’s annual report,
including as director of HSBC Australia Limited from 2004-2007,
immediately before he became CEO of ANZ. In 2008 ANZ also hired its
group managing director of human resources and chief risk officer from
HSBC, and in 2011 plucked its new global natural resources head from
HSBC.
Too Big to Fail?
Whoever it is that owns the big four banks, one thing is clear: if
the same four custodian companies own similar chunks of each of the big
four, there’s indication that the shareholders behind them do not want
one bank to succeed at the expense of another. The optimal scenario is
if all of them win together. And maintain their dominant position, of
course.
credicardcompare.com.au 19 May 2014
