December 19, 2018 / 1:51 AM / 6 months ago

Investors revolt against executive pay plans at tarnished Australian banks

SYDNEY (Reuters) - Shareholders voted against the executive remuneration plans of two of Australia’s biggest banks on Wednesday following misconduct revelations that have swept through the country’s financial sector.

A man walks past ATM machines at a National Australia Bank branch in Sydney, Australia April 20, 2018. REUTERS/Edgar Su

National Australia Bank (NAB.AX) shareholders delivered an unprecedented protest vote against the lender’s pay plans, with a record 88.1 percent opposing the executive bonuses presented to the annual general meeting in Melbourne.

Australia and New Zealand Banking Group (ANZ.AX) shareholders also voted down ANZ’s executive bonus plans at a later meeting in Perth, with around 34 percent against, well above the 25 percent required to defeat the motion.

Under Australian corporate rules, if more than a quarter of shareholders vote against a pay proposal for two years running, they can call for the board to be removed. NAB and ANZ now join Westpac Banking Corp (WBC.AX) with one strike apiece.

Australian banks have seen about A$67 billion ($48.2 billion) wiped from their market value since February when a quasi-judicial inquiry started public hearings into financial-sector wrongdoing.

The Royal Commission inquiry lifted the lid on widespread malpractice that put profits before customers, disregarded compliance obligations and encouraged misbehavior with conflicted bonuses and commissions.

The inquiry is expected to recommend tougher regulation of the financial sector when it hands its final report to the government in February, particularly around the use of bonuses and incentives.

“Investors today sent a strong message to the boards of NAB and ANZ that they expect much higher levels of accountability for the misdeeds exposed by the Royal Commission,” said Louise Davidson, the CEO of the Australian Council of Superannuation Investors (ACSI) which represents 39 large funds.

“Investors take issue with the payment of executive bonuses in a year when the Royal Commission highlighted systemic breaches of the law and mistreatment of customers within the banks.”

‘FAILED CAPITALISTS’

The Big Four retail banks yielded close to 20 percent return on equity over the last decade, Refinitiv Eikon data shows. That has shrunk to 12 percent this year as earnings tumble, growth plans are abandoned and fee income is cut in the fallout of the inquiry.

Shareholder Chris Schott told the NAB meeting the bank’s board and its senior management were “failed capitalists, they have destroyed millions and millions of dollars of value. They can’t continue”. The comments were met by cheers in the room.

The 88.1 percent vote against NAB’s remuneration report is a record high for any listed Australian bank.

“This has been a challenging year,” NAB Chairman Ken Henry told the AGM.

“The board is hearing loud and clear that our new scheme is not right. We tried, but we got it wrong. We are listening to you. We will try again.”

He said Australia’s fourth-largest lender would change its pay structure next year, after taking into consideration investors’ concerns and the Royal Commission’s recommendations.

ANZ Chief Executive Officer Shayne Elliott told shareholders the bank “too often failed our customers”.

“We have acknowledged this and publicly apologized,” he said.

The remuneration plans of Commonwealth Bank of Australia (CBA.AX), the biggest member of the country’s “Big Four” banks, were passed last month after it lowered executive bonuses and directors’ pay.

NAB shares were 0.8 percent higher in afternoon trading and ANZ shares were up 0.6 percent, while the broader market was slightly lower.

($1 = 1.3897 Australian dollars)

Reporting by Paulina Duran and Jonathan Barrett; Editing by Stephen Coates

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