John Hempton highlights something interesting today about resignation of top Australian Bankers.
Back in 2016 John Hempton and Jonathan Tepper of Variant Perception conducted research by personally meeting with the real estate brokers and seeking apartments to buy. In a sort of reply of scenes from the Big Short, they found banks wanting on the paperwork, mortgages being sold to those with questionable ability to repay. You can read some media reports about this here, here or here.
Today John Hempton wrote about recent firing in light of the final report of the Royal commission into banking and detailed allegation therein. John Hempton says:
Anyway come the Royal Commission Dr Henry talked to the Commission in a frank and open way about the problems. It was Dr Henry being Dr Henry: honest, competent, and realistic.
It came off badly. I remember the grilling he got from the Royal Commission and understood what was happening. It was clear that what was required from the Royal Commission was kowtow, rather than honest frank discussion. Dr Henry looked bad even though he was probably the single most reliable and honest witness the banks put up.
The Royal Commissioner made specific findings against Dr Henry and Andrew Thornburn. This surprised me because on my research National Australia Bank was the best of a bad lot, both in absolute level of moral decay and in direction.
The report quotes Dr. Henry and Thorburn in many places. The transcripts do not show Dr. Henry in good light. The transcript indicates that possibly Dr. Henry took this too lightly. He did not do any homework. A deposition once you are sworn in is a serious business. I do not sympathize with Dr. Henry.
The transcript of some others reveal that they kept repeating from jargon books and PR manuals. To that extent whatever their deep rooted ills did not come out.
Implication for property market
There are two fundamental issues with the housing and mortgage markets.
First the search for yields and the quantum of capital available makes real estate the best asset class to absorb the QE effects. It is doing precisely that. So some of the price appreciation is attributable to this. The macro policies have created this asset builders boom - create an asset and sell it to REIT type holders at ludicrous cap rates without any regard to final consumer.
Second, the problems in mortgages are of banks creation. As banks search for return in a tight market they have crossed the limits. The crisis in Australian banks is part of continuum that includes Wells Fargo opening accounts for customers to US sub-prime crisis. It may not be as acute but it is part of the same class.
Learnings for Commissions in India
The commission for banking has its website and documentation spot on. I urge Indian commissions to maintain such kind of records open for public scrutiny.