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Aspects of bank mergers

CHAIR —I welcome representatives of the Finance Sector Union. Do you wish to make an opening statement?

Mr Carter —Thank you, Madam Chair. We appreciate the opportunity to appear before the inquiry and also the fact that you have given us some extended time to appear. You have a copy of our submission, so we do not intend to read it or speak to it at length, because we think it stands on its own feet. The delegation that is before you today is predominantly made up of finance sector workers. The reason that we have brought such a delegation to appear before you today is that we believe that listening to their experiences of being finance sector workers will give you a firsthand account of what the actual human costs are of issues like mergers and offshoring, and also give you an opportunity to hear about what is actually happening in the industry. It is an industry that receives a lot of coverage and there is a lot of speculation and a lot of debate about it, and we think it is very important that the workers’ voices be heard in relation to the very serious issues that are confronting our industry.

We believe that, once you hear from the people who work in the industry, you will see that there is a need for action on issues such as mergers and offshoring. We are very supportive of the Senate in creating this inquiry and we wait with bated breath for the outcomes, because ours is an industry that needs action. We have, in some ways, been protected from the worst ravages of the global financial crisis, but it is still having a major impact in this country. Our banks are predominantly still very profitable, very stable, but there are systemic issues such as mergers and acquisitions, such as offshoring, that need the attention of the parliament, and we congratulate you that this inquiry is going forward.

In terms of issues such as mergers, what I will do is very briefly go through some key points that we think need to be taken into account when we look at what actions need to happen, and then I will hand over to each of the workers to provide you with a very brief statement about what their experiences are in the industry, particularly as it relates to mergers and offshoring.

When we look at mergers, say the Westpac and St George merger, some of the key points that we would make to the inquiry are that at the moment the Treasurer has imposed conditions on that merger. But there is no proper process to monitor whether those conditions are met, there is no formal process through which that is independently monitored and, even more importantly from our point of view, there is no enforcement capacity at the moment, including penalties if those conditions are not adhered to. If mergers are to happen—and we certainly do not believe that they should—and conditions are to be imposed, we think it is absolutely critical that those conditions are monitored very rigorously and, where they are breached, action is taken.

The other point that we would make in terms of mergers is that currently whether a merger proposal goes ahead or not is assessed primarily through a very narrow competition analysis: the act talking about whether it substantially lessens competition. We would say that that is far too narrow an assessment that needs to be made about whether a merger proceeds. The public interest test that is applied in, we would say, a far too broad sense at the moment, does not take into account the employment issues—about whether people will lose jobs; about whether the merged entity is going to increase the number of jobs that it sends overseas.

We would argue that there needs to be a much more vigorous public interest test that takes into account employment and other community issues. We cannot, in our view, allow the determination about whether a merger proceeds or not to be seen through the very narrow prism, especially the way it is written at the moment, of competition, and we would argue that that needs to be much broader. We do not have a firm view about where that should be applied and who should apply it—whether it is the ACCC, whether it is Treasury—but what we do say is that that public interest test must be much more vigorously applied and take into account employment issues.

In terms of offshoring, the key points that we would make to you all are primarily around disclosure for a start. If a financial institution has offshored work, they should be legally obliged to explain to their customers, the consumers at large, where that work is being processed, so if you are speaking to a representative of one of the banks, you should know where that person is speaking from.

The banks in this country spend an inordinate amount of money and time hiding where that work is processed, who you are speaking to, and some of the stories that you will hear from the workers from the industry will demonstrate how that happens, and we would say that it is not honest. It is not being honest with the consumers about what is happening. How does a consumer make a genuinely informed choice about which bank should have their business if they do not even understand where that work is being done?

The second point we would make is that, before any personal or banking data is sent overseas, that should require the express written permission of the consumer. It should not just be an accidental thing. You should, in full knowledge, know where that information is being sent.

The third point we would make about offshoring is that the Australian government, the Australian taxpayer, is currently providing a great deal of support to Australian banks, and we would argue that that support should be conditional. In terms of the stuff that we are talking about today, we would say that, if the Australian taxpayer is going to help Australian banks, one of the conditions should be the immediate cessation of offshoring. If we are going to put money into banks and help them out, then they should be doing every single thing within their power to minimise job losses, especially given how profitable they remain.

I would now like to hand over to each of the workers to provide you with a very brief statement about their experiences, and then we will all be very happy to take any questions.

CHAIR —Thank you.

Ms Blackmore —Good morning, Madam Chair and senators. I am a current employee of St George Bank-Westpac in the contact centre at Parramatta. I will mention that this is an award-winning contact centre. Why not? We are world winners. Part of the conditions that were placed on the merger was to do with the retaining of the branch networks, ATMs et cetera, in a corporate presence in Kogarah. Nothing was ever mentioned about the call centres, of which Westpac have approximately five and St George-BankSA have three currently in this country.

At the contact centre where I work in Parramatta, probably for the last six months or so we have no longer been employing full-time staff. Everybody that is coming through now is a temp, which leaves us a bit out in the air as to the future of our jobs and what is going to happen. It is a given that, as part of the merger, some of the services that overlapped would be incorporated. The major impact with staff, of course, is morale. The on-flow effect to our customers is that they are getting a lower level of service. There is uncertainty on the floor. I do not know what else to say about that. That is what is going on at the moment. We are all worried. We know that out jobs are probably going to go very soon.

Mr Wilkins —I would firstly like to thank the FSU and the Senate for allowing me to speak today. I have been employed on a full-time basis by the National Australia Bank for the last 15 years, five of those years in branches and financial services centres and business banking centres, and the last 10 at our lending services centre in Queensland. My current position at Lending Services Queensland is as a personal banking assistant in our sales fulfilment department. My duties include pre-processing of loan applications to ensure bankers’ submissions are adherent to policy and procedure; preparing documentation such as loan contracts, mortgages and releases; and providing breakthrough customer service to bankers to ensure delivery of documentation is both timely and efficient.

In April last year, I was advised that my position was to be outsourced to India sometime in 2009. That date was confirmed in December last year to be 25 March this year, which is in a week and a half’s time. As of that date, my whole sales fulfilment department will have been retrenched by the NAB. The role that is to be performed by an overseas counterpart will be paid one-tenth of my salary in India. By June this year, Lending Services Queensland will dramatically shrink from 300 employees to 60, and there are further reviews taking place at the moment. That number is certainly going to reduce by the end of the year.

In recent weeks I have seen firsthand the problems the bank is already having with lending services in Jaipur in India. There is a lack of customer service in comparison to our centre and there are also language and communication barriers that have become apparent. I can understand employers cutting jobs due to the global meltdown, but to cut jobs by offshoring is avoidable, unethical and un-Australian. I urge the federal government to act immediately to halt any further job losses due to offshoring in all possible sectors of the economy. If this is not done, unemployment and social security payments will continue to rise and income and payroll taxes will fall.

Finally, Barack Obama said in his acceptance of the Democratic presidential nomination that he will stop giving tax breaks to companies that ship jobs overseas and will start giving them to companies ‘that create good jobs right here in America’. Maybe we can adopt a similar approach in Australia. Thank you.

Ms Bourke —Madam Chair and senators, up until 27 February I worked for Westpac Bank. My role was cash balancing, which is balancing all the cash that comes into and goes out of the branches every day. We had 700 branches. Our jobs were offshored. They took over completely on 6 March. The way that I have seen it, it certainly has not been working. We have had a lot of complaints. We have a language barrier. We have all sorts of problems. Westpac are not interested in doing anything to alleviate that problem. The staff morale is very bad. More people are going to be retrenched at the end of this month. I find it very upsetting to see these things happen and I am here today to talk to you and let you know exactly what is happening out there in the workplace.

Ms Harvey —Good morning, Madam Chair and senators. I work for the National Australia Bank as well. I work in the same centre as Mark and I am a team leader of one of the teams that will remain. The only reason that we, and the few other teams that are left, are remaining is because we physically need the security packets of the customers, so the only reason that the bank is not offshoring us is that they have not found a way to do so.

When they announced this to us a year ago, I was very upset because I thought, ‘This is the tip of the iceberg.’ The National Australia Bank is not the only bank or company that is doing it. The simple fact of the matter is that well over 200 jobs are going in Queensland, more in New South Wales and more in Victoria, and jobs have already gone in Western Australia and South Australia. We are probably looking at pretty close to 1,000 jobs that are going.

I just worry about the future of Australia. I am a mother of four children and I want my children to grow up and be able to contribute to society and get jobs in Australia with Australian companies that provide services to Australians. The decision makers in the major corporations are only ever motivated by profit. They do not care about the human factor and there is a human factor involved. The permanent members that have gone have got payouts, so the decision makers think that they have satisfied their requirements by meeting the financial needs, but there is a huge emotional factor involved.

I can see that a lot of the people that have gone have been very upset because they have worked for the bank for years and shown a lot of loyalty and in the end that loyalty was not returned. I do not think the corporations are going to do anything unless the government makes them, so I would hope that there is some outcome from this inquiry. Thank you for your time.

Ms Gordon —Senator Hurley and senators: thank you for making the time available for us to appear here today. I am a career bank officer with continuity of service over 22 years and five different employers, from the Launceston Bank for Savings to the Commonwealth Bank. I am currently employed by Bendigo Bank in business lending.

I want to speak to two basic items today. The first is the personal impact of takeovers and the second is the business case around takeovers. In respect of the personal impact, I have got two very strong memories that stick out most from the four mergers I was subjected to—or ‘takeovers’, as they really are, more accurately. The first one is that when the announcement was made that Tasmania Bank was going to be taken over by the SBT, stakeholders were briefed late in the previous day and it was supposed to be that that announcement was embargoed with media overnight. That embargo was broken and most of our staff found out that we were being sold to someone else in a newsflash about nine o’clock that night. I turned up to work the next morning to a branch that was full of people who looked shell-shocked. They looked ashen-faced. They looked like they had been kicked in the guts and, I can tell you, that is exactly what it felt like.

Another merger on, we had been sold off to Colonial. Before we even knew what jobs we had under the Colonial structure, we found out that Colonial was being bought out by CBA, so no matter what people were feeling not knowing what jobs they had under Colonial, it was doubled when they realised that they were going to get maybe a job in the Colonial structure and then have to go through the same thing again in six months time with the CBA.

You think you are over this. This has happened to me over a period of 15 years and it has been in excess of five years since the last one. You do think you are over it but, in terms of having to work on the submission that the FSU has lodged, it all comes back again. You forget the angst and the grief and the sense of betrayal. The night that I worked on the submission for this, I was still awake at 3 am and I was not a lot better the next day. There is a human cost to this. We are not just collateral damage.

As an industry workforce, we are committed. We do provide good customer service. We are professional, and the community in general thinks well of bank workers, even if it does not particularly think well of banks. Despite having gone through so many takeovers, everyone I have ever worked with has always, still, in that environment, focused on the service delivered to the customer. Our commitment has always been to our clients and to our workmates, even if the commitment of our employers was not to us.

The second thing I would like to speak to is the business case around mergers and takeovers. Every takeover I have been subjected to has lost business. I struggle to see how it lines up with the argument that mergers and takeovers provide economies of scale and processing efficiencies when you have a large portion of your business walk out the door. When Trust Bank was bought out by Colonial, then CBA, we had an enormous amount of clients say, ‘Well, if I wanted to bank with the CBA, I would already have been with them,’ and they leave—over a period of time, because it takes a fair bit of effort to change banks. It is bad enough if you just do transaction banking, but if you have tied up with loans or you have business lending and you have got credit cards and you have got direct entries going in and out of your account, it is a serious amount of work to do this.

Everyone here who works in the industry will have stories and can give you examples of how we have been through changes as a result of mergers and takeovers that have been a backward step in terms of processes, procedures and the range of products available to clients. I will give you a couple of examples of that. When Colonial took over, they reissued Colonial ATM cards to the entire customer base from Trust Bank, but unfortunately they were not linked up to the giroPost network, and their response was simply, ‘Oh well, you’ll have to go to a branch.’ This is fine if you live in a metropolitan centre, but not everyone does, and it is fine to talk about customer service and then turn around and do something like that.

The other completely stupid thing that was done was that we had a workforce of about 80 in a locally based processing area that was back office and document control and title control and things like that. They made all those people redundant. They brought in, I think, 20 casuals with no banking experience to oversee the process of sending all those loan documents and property titles up to wherever they were going in Colonial’s structure. As part of this process they lost a lot of those titles. Then it got to the point in Hobart where local lawyers were really basically spitting the goo about the amount of time that it was taking to get discharges through from us. Colonial had the temerity to say that this was because some of the business lending staff in Trust Bank actually kept personal files and took stuff home with them. It has been years since that happened and I am still absolutely gobsmacked that it did. It was an insult to everyone who ever worked in the organisation.

I am a business analyst. I get the need for businesses to make profit. I understand that there is a need to return funds to shareholders for making their investment, because I cannot lend to a business that is not making a profit. So I get the need for profit. But I have got to say, in terms of the four major banks in this country, how much do you really need and at what cost do you need to increase it? And do not even get me started on executive salaries, because that is not what we are here for.

Customers who choose regional banks and credit unions and building societies rather than the four major banks have already made an informed decision about what business they will support, what business they will go to, what qualities they look for in their financial provider. Every time one of those regional banks gets sucked up by one of the four major banks, that choice to the consumer contracts further. We are rapidly approaching a point where we are going to have four homogeneous big four banks who badge themselves differently, essentially all operate the same way and offer nothing different. Most of the clients that come from other banks to the organisation that I work for do so on the basis of service and quite often on the basis of lower fees.

The last thing I want to say, with apologies to Henry Ford, is that we are going to end up with a position where you can have any bank you like, so long as it is black. Thank you.

Mr Carter —Thank you for the opportunity to allow all of the workers here to make a statement. So far, by our count—and we believe it is a conservative estimate—over 4,900 jobs have been offshored out of the Australian finance industry. Where is the dividend going? They say it is about reducing costs; they say it is about saving money. It is not being passed on to the consumer. Bank fees are not coming down. They are not passing on the full extent of interest rate reductions. We can certainly tell you it is not being passed on in wages. So where is the dividend going? If it is genuinely, as they say, about cost reduction, where is that saving going? It is certainly not being passed on to the workers or to the consumers.

Senator CAMERON —Many would be interested in the answer to that.

Mr Carter —I think that would be very good, yes, Senator Cameron, and I think, too, predominantly to shareholders, which are more often institutional investors rather than the mum and dad shareholders that we often hear about. We are all more than happy to answer any questions that you may have. Thank you for your time.

CHAIR —Thank you all for telling your stories here today. We had some evidence last night that there are no contact or call centres overseas from any of the banking groups in Australia and that it is the IT and data that is offshored and the evidence we heard was that a large part of that was because of the skills shortage. What you have told us today indicates that that is not the case and that it is driven by cost.

Mr Carter —It is true to say that at the moment none of the contact call centres have gone, but we would say that that decision has been imposed on them, to be honest. We have opposed it. There is a very strong reaction from any of the public and the customers about sending contact call centres over. But it is also this notion that it is just the lower end jobs and the processing jobs that are going overseas. These are the jobs that are critical to making the front end of the banking structure work. Whilst it is true to say that the contact call centres have not gone, we are in no way confident that that will not happen at some point if they are allowed to proceed as they are at the moment.

Once upon a time when we would attend the bank AGMs they would say, ‘It’s about efficiency. It’s about changing service.’ At the last few AGMs that we have attended, they stand up there and, without any shame, say, ‘It’s now about cost.’ If they can get it done cheaper somewhere else, why wouldn’t they get it done cheaper? And that is going to apply to contact call centres.

CHAIR —From the point of view of government regulation and so on, unless there is a case to be made for the financial industry—and I do not believe that you are making a special case—if the government is to act to stop work being taken offshore, it needs to be across the board. That is a difficult thing to do. There are many other organisations in Australia—telecommunications, for example—where a lot of the work is offshored. You have given us in your submission quite a few recommendations, but is there any way that you believe the government or regulators can act to try to prevent offshoring of jobs?

Mr Carter —I might let Rod talk about the technical side, but, on that notion of a special case, the only thing that I would say sets finance aside at the moment is that it is getting much more support from the federal government, whether it is bank guarantees, whether it is a range of other policy interventions which are supporting the operation of the banks. We cannot imagine the federal government giving that sort of money to Toyota and then saying, ‘We don’t mind if you take the assembly line over to China.’ So we would argue that if they are going to give access to taxpayers’ money, and support and policy interventions, then this industry, which remains highly profitable, should have conditions attached to it. How do you do that in a regulatory framework where you have got the whole economy offshoring? I am not speaking for all of the other unions, but I am sure we would love, right across the economy, for offshoring to be stopped. Rod, do you want to talk about some of the technical stuff that they can do?

Mr Masson —Thanks, yes. We work closely with other services unions, and those that are in the telecommunications industry are also a party to the policy that is part of our submission that goes to some of the legislative matters that we would urge government to consider. Part of that is, obviously, the right to know, which we think at least brings this issue out into the open so that consumers can make informed decisions about where they do their business and who they do their business with.

We have looked at tax incentives or, potentially, disincentives if a company is sending work or jobs offshore. That was mentioned by Mark in regard to the Obama administration and their movements at the moment. Another issue is government procurement. We think government needs to have a look at its procurement policies and consider carefully who it is contracting to and ensure that those companies and service providers are maintaining jobs here in Australia. More broadly, the government has a fundamental role to play in industry planning. One of the things that is very lacking in our industry, and perhaps in many others, is an overall industry plan: where our industries are heading and how we are going to get there; what investment is being made into skills development; what investment into jobs.

It is no accident that India is where it is in terms of its BPO—business processing operations. It has long made plans with government to secure those types of jobs, and its plan is not about simply getting the low-level processing jobs. Its plan is to eventually move right up to PhD and doctorate level work and ensure that it moves to India. Ireland, similarly, has had plans about attracting financial services.

These things do not happen by accident. The market, left to its own devices, will not come up with the solutions, so government has a role in assisting industries, along with other stakeholders, in developing those industry plans that will drive forward Australia’s capacity in areas like financial services, telecommunications and other areas where offshoring is occurring.

CHAIR —Thank you.

Senator EGGLESTON —I was interested in Carol Gordon’s comment about customer choice: that the people who chose smaller banks and building societies did so for the reason that they got a different service. I must say that in my case that was true. I used to bank with the Town and Country Building Society in Western Australia because I got better deals and was very upset when they went to another bank and were taken over and I found that all my conditions changed. So there is a lot to be said for that.

What are you implying? We were told last night that we have now got 11 banks and four majors. Are there any significant differences between the terms and conditions of loans and so on or are they all the same sort of vanilla Australian bank terms and conditions?

Ms Gordon —Do you mean in terms of—

Senator EGGLESTON —Customer service.

Ms Gordon —what the four majors offer compared to second-tier banks?

Senator EGGLESTON —Or have we lost the differences?

Ms Gordon —Part of my job is comparing competitors’ products with our products and the four major banks’ products. Every one tweaks a little bit. They will muck around with an ongoing fee or the up-front fee or they will shave an extra 0.1 per cent off a rate or something like that. There is no fabulously sexy product that one of them offers that the other three do not, in my experience, and the minute anyone comes up with a new version of something, the others just copy it anyway.

Product development takes a substantial amount of time. There is a lot of legislation to be complied with as part of it, so product development is time-consuming as much as anything else. But, yes, they are all pretty well variations on a theme and, to be honest, everyone in the entire industry has got a similar suite of products. The difference comes in the pricing and the services attached to it.

Mr Carter —One example that we have used often is the St George Bank. They did that ad a few years ago where the guy is at a barbecue and he says, ‘I work for a bank,’ and everybody sort of stops in shock-horror, and he says, ‘It’s all right, I work for St George.’ They branded themselves very differently and prided themselves on a very different customer experience when compared with the other four—not to be too unkind—but at the moment if you walk into a branch of the big four it is sort of, ‘Do you want fries with that?’ You might go in there to deposit some money and you walk out there thinking, ‘What the hell was that all about? I got sold a new credit card and all of those other things.’ But St George, for example, was very different and prided itself very much on that different customer service model. When we were at the extraordinary meeting that voted, unfortunately, to accept the merger with Westpac, hundreds of shareholders stood up and said, ‘I don’t want the service that we stand for at St George being swallowed up by the big red W.’ There are differences, but the bigger the big four get, obviously the less competition there is. Size does matter in the industry.

Senator EGGLESTON —Is it fair to say that in the past there were greater choices and more variation?

Mr Carter —Absolutely.

Senator EGGLESTON —And mergers have certainly reduced the numbers of differences between the bank products offered?

Mr Carter —Absolutely. For example, you had a whole credit union community, which is contracting very quickly at the moment. It is very difficult for a new player to enter our industry. It is not as if they can just start up. There are reputation issues and all of those sorts of things. So it is very difficult to break out of that mould and, as there are fewer competitors with the big four, the less likely that is to occur.

Senator EGGLESTON —I would like to ask you about online e-banking and e-banking technology. What do you see in the future in terms of the growth of e-banking? Will that lead to even more contraction of the number of physical banks and loss of jobs, do you think? I am leading you a bit, but they are questions that I would like to have answered from your point of view and on the record in Hansard.

Mr Carter —Absolutely. There is no doubt that there is going to be a continuation of the growth in the amount of banking that is done online and through that sort of e-commerce notion. More and more, we are seeing the big four talk to each other about how they can consolidate their back office processing, so share those services, and we have no doubt that once they share them, once they get them together in this country, it will be much easier for them to shift them overseas. We have seen that in some other industries.

There are two problems with that approach from a business model point of view. You have got one part of the bank at the moment saying, ‘Where are all of the customers that we are trying to sell to? They’re all online,’ and there is a bit of a tension between them at the moment. You have got one group who want to sell products and cannot get to them any more because they are all online; I think most people are becoming fairly adept at ignoring the flashier stuff on websites.

But the other thing that they are doing now is starting to charge more fees for that internet banking. Once upon a time their drive was, ‘Don’t come into the branch. That costs us more money. Get the hell out. Do it online. It’s all free.’ Now that they have shifted a whole group of the community online, they can start charging fees. You look at the ATM fees, which is just another form of electronic banking. What they will do is push more and more customers online and they will make it harder and harder to get into bank branches. There is no doubt that that will increase, and it will lessen competition because it is a very expensive business to run that sort of electronic banking, and the more people who get onto electronic banking, the harder it will be for the smaller players to catch up. If you look at the services that Members Equity and some of the credit unions provide online, they are not as fully-fledged as the banks because they cost a lot of money.

There is no doubt that they are going to push more people that way. They will charge them higher and higher fees as they do that. It will drive people out of the branches. There is no doubt that the more they consolidate the electronic stuff the easier it is to go overseas. No-one has been even pretending any more that their long-term plans are not about sending those jobs overseas where they can be done, as Mark said, for a tenth of the cost.

Senator EGGLESTON —Thank you.

Senator PRATT —Thank you for sharing your personal stories with us. It is not always easy to rock up to a parliamentary inquiry and do something like that, but it does make a big difference to us. With respect to offshoring, I note that Bankwest, in being taken over by the Commonwealth, as a brand, they seem to do less offshoring than other companies, but perhaps that is starting to change, whereas you have, I think, the ANZ that perhaps does quite a substantial level of offshoring and has a reasonable level of investments overseas. When you have got one brand that is doing a lot of offshoring, how much pressure is that going to put on other brands in relation to their cost base, when it is compared to the imperative to protect their reputation, because people do not generally like a high level of offshoring?

Mr Masson —In response, there are a couple of things we would want to say about that. One is that there is no great imagination amongst our banking fraternity, or there is no great initiative to be different or to be new. This is part of the problem when we have ongoing mergers that lose competitors that may want to differentiate themselves. So you are right in the sense that it becomes a bit of a follow-the-leader process and they do tend to feel the competitive pressures, or they look and think, ‘What are they up to? We must get on board that bandwagon,’ perhaps in some instances without really thinking and fleshing out what that may mean in terms of reputation and the longer term strategy that they wish to develop.

That is indeed so with the shedding of jobs, which we are seeing at the moment across the industry. They all tend to follow each other. If one goes for 1,000 the next one will one-up them by another half a thousand. So that is a problem within itself and it does create a tension where they all want to follow the leader. The other matter—and it has been addressed here today—is about the issue of making sure that this is out and it is public knowledge. It is only by doing that that you create the competitive pressure the other way by being able to hold up someone like a Commonwealth Bank who does not undertake offshoring at this point and say, ‘Actually, here’s the alternative,’ and allowing consumers then to make that decision. But at the moment, as has been expressed very well by the people here, the banks are attempting to hide the fact that they have offshored. The people who work in some of the processing environments in the back office areas are the ones that interface with the work being done offshore, not the customers.

Senator PRATT —So they are hiding behind the fact that banking customers such as myself are not the ones talking to people overseas on the telephone.

Mr Masson —Yes.

Senator PRATT —Therefore, the implication of that is: ‘We’re not offshoring in a way that affects customers.’

Mr Masson —In fact, they are specifically directed not to inform consumers that the work is being done offshore.

Senator BUSHBY —Thank you for coming along today. As Senator Pratt said, I am sure we all appreciate the personal stories that you have brought and put before the committee. Ms Gordon, you might be interested to know that in the early eighties I actually worked at the Launceston Bank for Savings for two years myself. I think I might even have, at the time, had to be a member of the FSU, or its equivalent in those days.

Mr Carter —Well done! That’s good stuff!

Senator BUSHBY —You would be interested that I have also been a member of the BLF and a number of other unions. I am interested in exploring the competition aspect a little bit. I do not want to move away from the personal aspects that you have brought, but there are other issues that are relevant to the terms of reference. Ms Gordon, you were talking about how we are heading towards a situation of homogeneity in banking where all banks will be black. We heard evidence last night from Treasury that there are over 150 approved deposit-taking institutions in Australia and that there are high levels of competition in financial services. They went through statistics of how many were offering home loans and how many were offering all sorts of different services that are available in the financial sector. Other than business banking, it did sound like there were quite a range in most areas.

We also heard evidence that the smaller institutions—that is, those outside the big four—have actually, over the last 10 years or so, been taking market share from the big banks, which all sounded very good to me in terms of competition in the financial services industry. What is the Financial Sector Union’s perspective on that? Do you have a different view? Ms Gordon was saying that it was all collapsing down to some extent. Treasury are telling us in their Treasury fashion that there is a whole range out there. What do you make of Treasury’s comments about the level of competition that does exist and where we are heading at the moment?

Mr Masson —A better measure is where consumers actually do their banking.

Senator BUSHBY —Yes.

Mr Masson —In recent times the so-called flight to quality is a classic example of what occurs when you have four dominant players and they are able to control the market to such an extent. In home loans and in deposits, it has been particularly evident that consumers are feeling the need for security and are moving back to them. So they completely dominate the market when you start to break down the number of accounts that they hold, as compared to the range of different providers that Treasury might be talking about. The other point that is interesting, while we are here talking about mergers, is that, whilst you might have those competitors in a very small and probably localised or niche market, as soon as they reach any sort of volume they are immediately snapped up. This is the problem.

Senator BUSHBY —I can see that trend.

Mr Masson —Yes. The difficulty is that, as Leon was talking about—particularly if you look at St George—it took from the 1930s or 1940s, I think, for St George as a building society to create a brand and a differentiation to attract the customers, to grow to a scale that then began to be genuinely competitive with the big players and, as soon as it hit a particular mark, it was then bought. It is going to take an awful long time for another competitor to grow to that sort of volume in terms of attracting customers and providing that level of competition.

Mr Carter —In Victoria, when Westpac bought Bank of Melbourne, the Bank of Melbourne, a bit like St George, had a very different marketing position about customer service, and customers left Bank of Melbourne in droves and predominantly went to places like Bendigo. If you look at Bendigo’s creation and explosion in Victoria, you can almost see, as they walk out of Bank of Melbourne’s door, they are walking into Bendigo Bank’s door. So that is some of the movement. What we have seen through the crisis, and if you look at their ads at the moment, it is all about stability. It is about, ‘Come home and do your banking with the big four.’ There might be lots of opportunities, as Treasury said, to bank with different people, but that is not the reality. That business is now flooding back through the doors. If you talk to the people in the industry, the targets around deposits and home loans, are all coming back to the big four.

Senator BUSHBY —I agree with you. The crisis has fundamentally changed everything. Up until mid to late last year, it appeared that consumers were making choices: where Colonial Bank gets taken over by the Commonwealth Bank, which has just taken over Trust Bank, people do walk out the door. They say, as you said, ‘Well, if I wanted to bank with the Colonial Bank. I would have been there in the first place,’ and so they have gone elsewhere. You get the second-tier banks or institutions that build up in size until they are taken over, but then people move away and start going somewhere else.

Mr Carter —Absolutely. Yes.

Senator BUSHBY —So in a sense it was working in a circuitous sort of way, but the crisis has intervened to some extent. I asked Treasury last night—and I will ask the ACCC people when they come on—whether, in considering the issues around a proposed merger, the financial crisis will have an impact in what they actually look at, particularly in terms of the lessening of competition because of the flight to quality and the fact that people are moving back to the big banks. Will that have an impact on their consideration of the overall impact on the market of mergers? The Treasury guy said it would. They also pointed out that there were other consequences of the crisis, and that may mean that some of the smaller players become less viable and it may be to the advantage of the market for them to merge with somebody else to avoid job losses and other problems that might flow.

Mr Masson —Just taking up that point, the clear examples here, in line with what you have just stated, are Westpac-St George v CBA-Bankwest. Bankwest was owned by the UK bank HBOS, the Halifax Bank of Scotland, and they are obviously in terrible trouble. As a result, there are different circumstances perhaps surrounding how that must be considered. I will let the ACCC respond to how they go through that process.

Whilst people may not have seen the types of problems that were coming in its entirety with the GFC, that should still have been a factor round the Westpac-St George decision. We argue that one of the problems with the ACCC signing off on that merger would be that they would have a whole series of different players then lining up and knocking on their door. As it turns out, this has not played out yet and we have not seen the full consequences of it, but we have no doubt that someone will be knocking on the door about Suncorp at some point.

Bendigo-Adelaide may well be in the sights of one of the big four as we speak. So we think that that will occur. We are not sure that the scope of what is provided to the ACCC allows them to think beyond what is in section 50 of the Trade Practices Act. We are not anticompetitive. I would hate you to think we are standing here saying, ‘No competition! Far from it: we are pro competition. We support four pillars and regional banks for that reason. But one of the things that we are trying to address is the need for a broader analysis of the impact of mergers as opposed to that very thin process at the moment of substantial lessening of competition.

We would like to see it broadened out so that there are far more things taken into account, particularly, as you say, local market factors—where people might want to go; why they bank with other organisations; the employment and community impacts—and be able to have a look at all of those types of matters as part of the assessment.

Senator BUSHBY —Just to make sure that I am not misquoted, what you are saying is true in terms of what I said. My main issue there is also the lack of competition. The lack of competition is bad for society, for social reasons and for the flow-on consequences. But I am interested in exploring with the ACCC—and as I asked Treasury last night—whether the fact that people will not be walking out of the big banks and into other banks to the same extent after a merger, given the current circumstances, will be a factor that they will look at when they are considering the impact on competition.

While we are talking about the global financial situation, you do talk about the big banks being profitable. I agree that the results that have come out most recently still show that they are making reasonably healthy profits in the overall context of things. But a lot of banks around the world are not and Australia has fared fairly well out of this. The taxpayer support of those banks that you refer to has not resulted in hand-in-pocket yet. It has probably provided a windfall—we heard this last night as well—to the government, through premiums paid on the various guarantees, of maybe up to half a billion dollars.

So at this stage the government measures are not costing the taxpayer; they are probably giving the taxpayer a windfall. But, nonetheless, there is always the risk that there will be a need to do something. Where I am going with this is that a lot of the recommendations that you make may actually cost the banks in terms of their bottom line. If things continue to deteriorate and the banks in Australia do find it tougher, then what you are asking may be counterproductive and may lead to situations where the banks become less viable or less stable, which will have a lot of flow-on consequences for Australians across the board, but particularly for members of your organisation.

Mr Masson —Could you be a little more specific about where you think our recommendations will cost the banks? Are there specific areas?

Senator BUSHBY —The obvious one—and do not take this as me supporting the banks offshoring because I do not necessarily do that—is requiring, in return for the support that the government is giving through the guarantees, that they do not offshore. You said yourself, and I think Mr Wilkins said, that your job will be replaced by somebody who will be earning one-tenth. Obviously, that is going to cost the banks less. Once again, I do not want this to be taken as me supporting offshoring, but in terms of a numerical analysis, requiring banks not to offshore will increase their costs.

Therefore, if the banks are facing tougher times as a result of the crisis, which may well play out, they will ultimately have the choice of going to the taxpayer and saying, ‘Underwrite us or we will cut costs.’ If they cannot cut costs, or if their costs are being increased, then it may force the bank guarantee to be called on or otherwise affect their viability.

Mr Masson —I will make the response quick: it will not increase their costs, it will hold their costs as they are. They seek offshoring to decrease costs, so it will not increase costs. The other thing that is not factored into this debate is the impact on the efficiency and productivity that is occurring as a result of the offshoring. These organisations are not allowing the time and putting effort into training the third parties that are accepting this work.

All of these people here could attest to the backlog of work that occurs as a consequence and that you then end up with not only more people working offshore to try to deal with the matter but also another group here trying to solve all of the issues. We do not know—and we would love to be a part of some sort of audit or evaluation process—but it is our view that there may not be the efficiencies that they claim. There is certainly the wage arbitrage, there is no doubt about that, but whether or not in an overall sense the efficiency is actually gained is still up for debate.

Senator BUSHBY —I do not have the answer to that.

Senator FURNER —I note you have a survey in your submissions, conducted by McNair in January, in respect of the Westpac-St George merger. Are you able to supply the details of the Q and A on that at all, so we can get a better understanding of what that—

Mr Masson —Yes, absolutely.

Senator FURNER —That is an issue that I intend to raise with the ACCC regarding a survey that CHOICE mentions in respect to 240 householder customers that were surveyed about the merger. Were you privy to that information at all?

Mr Carter —We did not get the details on that.

Senator FURNER —Not on yours, but the one that CHOICE refers to. It was not conducted by CHOICE. It was conducted by the ACCC, I understand.

Mr Masson —No.

Mr Carter —We are more than happy to provide details about our poll. One of the things we say in the submission is that we supported the ACCC’s notion of doing that polling, but we think it is ridiculous that, having done that poll, it is then kept secret.

Senator FURNER —Regarding data security, I listened with great interest to Mr Wilkins’ version of his employment of data preparation and that work going overseas. Last night we questioned the Commonwealth on what happens in circumstances where personal data protection may be leaked or provided. Their response was, ‘They have laws over there,’ albeit in their defence they could not sustain any credible comparison with the laws we have in Australia on privacy. Are you aware of any breaches of privacy, or of any data that has been leaked, as a result of offshoring?

Mr Carter —We are not aware of wholesale leaking of data. There have been a number of events that have been brought to our attention which we have tried to deal with, but the key dilemma is that they are a third party provider. If it is one of the banks that is offshored to another company in India, it is a third party, so you do not only have the problems about it being another country’s set of laws but you also have a third party that you are not in direct control of. A number of stories have been brought to our attention, which we have endeavoured to deal with through the industry, about serious breaches of protocols and whether lists have been on-sold to other parties. We are not aware of that, to that extent, but there are procedures that are in place at the moment overseas which do not adhere to the same procedures that we have here. There are, clearly, processing gaps. So there is an issue about the security of that data and the processing, beyond just the efficiency of it.

Senator FURNER —Okay, thanks.

Senator CAMERON —I have a number of questions but we have run out of time so I will put these questions on notice. The first question is in terms of Bangalore. ABA say that it is a centre of excellence and actually helps productivity and job growth in Australia. I would like you to give some consideration to that comment. Actually, could you go to the ABA’s submission and comment on that issue from that submission? In that submission they also say that their estimate of offshoring is 3,200, compared to your 4,009. Could you give me some comment on that?

Could you also comment on the ABA’s view that there is a skill shortage and that they need to use Bangalore because of that skill shortage? Could you give me a view as to whether you think we could end up with a virtual banking system in Australia, and could you give me a view on executive salaries—these bonuses, share options, golden handshakes, golden hellos, golden parachutes? Can you tell me how that improves productivity, how it improves consumption and how it improves the overall banking sector, and why there is no succession planning being done in the banks; why they need to go overseas to get some of these cowboys in here to run the banking system?

Mr Masson —We would be happy to do that.

CHAIR —Quite a lot of homework for you to do. I am sorry about that.

Mr Carter —Homework that we are very happy to do.

CHAIR —Excellent. We may also contact you for some kind of response, as we take evidence from other parties, and you are welcome to respond to—

Mr Carter —We would appreciate that.

CHAIR —any evidence that we get during the inquiry. We have a reasonable amount of time to get through this, so we want to make, obviously, a considered report on it. Thank you then.

Mr Bennett —Could I maybe put something on the record and ask senators to note. We obviously had concerns around what we felt was the approach that Treasury were intending to take with the monitoring of the conditions on the Westpac-St George merger. I guess, as we have said in our submissions, we got a very short response at the end of January, effectively saying that Westpac would write to us every six months. We wrote back immediately saying, ‘And what else?’ given that, as you would be aware, the FSU is actually named in the conditions as one of the parties to be involved.

We have not had a response from Treasury yet. I sent another email a week ago and I got a response saying, ‘We will respond to you shortly.’ There are a number of concerns about this. Firstly, they have had these responsibilities since October so I am concerned if they do not have a particularly detailed approach that they are working on already. Secondly, I am aware that they gave evidence to you last night and, obviously, we do not know what they said, but I would hope that there was some discussion around enforcement of the conditions. But they still have not responded to us, so I have concerns there which I just wanted you to note.

CHAIR —Yes. We may well follow that up during the course of the inquiry.

Mr Bennett —Thank you.

CHAIR —Thank you everyone for coming here today.

Mr Carter —Thank you for your time.

CHAIR —It has been very valuable. The committee has a private meeting that we need to conduct so we would ask everyone to leave the room temporarily.

Proceedings suspended from 10.06 am to 10.29 am