Who exactly does Ken Henry work for? The AFR inadvertently sums up the question today:
From the first article:
Regulators would have “no option” but to call on taxpayers to guarantee the banks in a future financial crisis, underlining the need for a strong federal budget, National Australia Bank chairman Ken Henry says.
The warning came as the Australian Prudential Regulation Authority chairman Wayne Byres vowed to push ahead with policies designed to prevent bank bailouts, and flagged further improvements in capital, funding and culture in the banking sector.
Senior business leaders and policymakers told The Australian Financial Review’s Banking and Wealth Summit on Tuesday that a key vulnerability remaining in the nation’s financial system was its reliance on foreign capital.
To address these concerns, banks will probably be required to build up capital buffers and reduce use of short-term foreign borrowing, while the government faces pressure to rein in the budget deficit.
Dr Henry, a former Treasury secretary, pointed to gaps in a key plank of the global plan to prevent future government bailouts of banks, so-called “total loss absorbing capacity” (TLAC).
So, is this the policy titan Ken Henry talking? After all, he led Australia’s GFC bailout as Treasury Secretary. Or, is this shareholder beholden NAB chairman Ken Henry talking? Is there any difference any more?
The answer is kind of important given it will determine just how compromised is the Australian tax-payer in its support of the big banks.
If this is the policy titan Ken Henry talking then the warning is terrific for the public and we should get on with explicitly refusing to guarantee the banks or, if not, taking a public equity stake along with conditions about our own board seats, remuneration ceilings and other conditions until NAB can demonstrate that it no longer requires public support. If that is true then we all owe Ken Henry a terrific round of thanks for infiltrating NAB on the public’s behalf. Shareholders, though, might be feeling more than a little pissed off as Mr Henry hoses away its major profit advantage.
But if this is the NAB chairman Ken Henry talking then shareholders should be mighty pleased. I mean, here he is, Mr GFC Bailout, now running the bank, with a hot line to the PM, able to deploy his Treasury halo as he lectures all and sundry about the ongoing need for public support for shareholder’s out-sized profits as the tax-payer picks up the risk. If that is true then NAB shareholders owe Ken Henry a terrific round of thanks for infiltrating Treasury on their behalf. Taxpayers, though, might be feeling more than a little pissed off as Dr Henry deploys their Budget brand in the service of profiteers.
And all of these weird-arse conflicts are nicely illustrated in the AFR’s second headline:
Arrium directors, who have presided over the destruction of more than $1 billion of value, were prepared to offer outraged lenders a clean-out of the company’s board and executive ranks as a last-ditch alternative to placing the steel maker in administration.
The company may announce a new recapitalisation plan on Wednesday, after its lenders vetoed a $US927 million ($1.2 billion) rescue package from US vulture fund GSO Capital. One of the serious options being contemplated is for the company to go into voluntary administration.
The future of thousands of jobs in the steel-making regional city of Whyalla in South Australia hangs in the balance and have become a major political issue in the state hit hardest by the decline of Australian manufacturing.
While the board was preparing for tense negotiations with lenders, hundreds of unionists, workers and concerned local residents marched through the streets in Whyalla chanting “Save Our Steel” ahead of the Senate inquiry into the future of the steel industry.
Acting mayor Tom Antonio said if the steelworks shut down, it would turn Whyalla into Australia’s “largest ghost town.
“People in Sydney and Melbourne don’t understand the severity of the situation,” he said.
“They’re oblivious and there are far-reaching consequences.”
After shooting down GSO’s offer to give the 35 existing banks and private debt holders about 55¢ in the dollar, ANZ, Westpac, Commonwealth Bank and NAB agreed to lend a further $400 million to Arrium on the condition it enters “voluntary” administration.
One of those lenders driving a hard bargain is, of course, Dr Ken Henry, or NAB, whichever it is. From The Australian yesterday:
Arrium’s lenders are unsecured creditors, meaning they do not have the authority to push the company into receivership, but as demonstrated yesterday they have the ability to block any unsatisfactory recapitalisation plan.
The rejection of the recapitalisation could also trigger a financial penalty for Arrium at an already difficult time, with the company bound to pay GSO a $15m break fee in some circumstances as well as refund up to $10m in fees and third-party expenses.
Greg Warner, an organiser with the Construction Forestry Mining and Energy Union in South Australia, told The Australian there was “a feeling of dismay and disbelief” among Arrium workers in Whyalla.
He said all the indications from management were that the project would be wound down in the months ahead.
“The way things are going, June may be the last month this place is open,” Mr Warner said.
“Care and maintenance is all we keep hearing from management here. They haven’t got a plan, they haven’t got anything to move ahead with.”
The company said it would remain in a trading halt until tomorrow or an announcement of an update on its discussions with its lenders.
In the absence of a sweetened offer from GSO, other distressed debt and private equity groups are thought to have taken a look at Arrium.
New York groups Argand Partners and Cerberus Capital Management had previously considered a joint proposal, while private equity giant KKR has previously looked closely at Arrium and is likely to be weighing its options.
South Australian Treasurer Tom Koutsantonis yesterday said both the Prime Minister and Premier had been in constant contact over Arrium and had spoken to NAB chairman Ken Henry and chief executive Andrew Thorburn.
Mr Koutsantonis called on Australia’s banks to play a role.
“While the banks are right to consider their balance sheet position, they also have to consider the national interest … we must manufacture our steel here in Australia,” he said.
“Australian banks that operate in this country have social licence and that social licence now is being called in.”
So Ken Henry’s hot line to the PM really is running hot. But to what purpose? Is the policy titan Ken Henry concerned about Australia taking the leap into the strategic unknown of having no long products steel production base? Or is the banker Ken Henry concerned about the $250m he’s lent to ARI as well as the fallout for NAB mortgages in SA? Both? All? In what order? Impossible to know!
What we can say is that ARI’s other creditors ought to be mighty pissed off if NAB can get on the blower to the PM to give implicit sovereign approval to a creditor queue-jumping strategy. That’d be sovereign risk, right?
It’s all very murky except in one stellar respect. Dr Henry is himself very clearly too-big-to-fail; a policy wonk running a bank whose assets are the same size as two thirds of the economy, that is hollowing out the industrial base of the nation, but can engineer preferential deals over the carcass of said industrial base with other policy-wonks, while creaming it himself.
