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It appears ANZ’s Australian head office made a decision five years ago that local management were unaware of. (Photo: Getty Images)
It appears ANZ’s Australian head office made a decision five years ago that local management were unaware of. (Photo: Getty Images)

BusinessMay 23, 2019

ANZ’s local bosses must front up to embarrassing Aussie mistake

It appears ANZ’s Australian head office made a decision five years ago that local management were unaware of. (Photo: Getty Images)
It appears ANZ’s Australian head office made a decision five years ago that local management were unaware of. (Photo: Getty Images)

ANZ has been placed on the banking naughty step for potentially lending to New Zealanders without enough capital to protect deposits. How did this happen?

Any journalist will tell you that Friday is a great time to issue an embarrassing press release. Journalists are humans with an eye on the weekend too, so they can miss it when someone ‘throws out the trash’.

And when a particular Friday is the day of the big annual awards ceremony for journalists, it must be very tempting.

So it was that last Friday one of the biggest banking embarrassments we’ve seen in a long time was announced by the Reserve Bank. It stripped the ANZ of the ability to set and manage its own capital reserves, which are needed to ensure it remains a safe place to deposit money. The Reserve Bank referred to a “persistent failure in its controls and attestation process” since 2014.

As dry as Reserve Bank announcements often are, make no mistake: This is a very serious ruling. A censure of this magnitude is not just the naughty step, it’s the banking equivalent of jail time. It indicates the ANZ may have been lending to New Zealanders for five years without sufficient capital to protect its depositors.

To understand the context, since 2008 the Reserve Bank has allowed the ‘Big Four’, ie. ANZ, ASB, BNZ and Westpac, to largely decide for themselves how much capital they set aside. Keeping a buffer of capital ensures they are safe places to deposit money, even in a crisis. No one wants a run on banks. Setting and managing their own capital levels is a rare privilege afforded the Big Four and is supposed to reflect how large, diversified and ‘safe’ they are.

By contrast, the Reserve Bank has required smaller locally owned banks to set aside more capital, and have those levels preset and inflexible. Local banks have long complained that this suppresses their profits and makes it hard to compete with their bigger foreign-owned competitors.

But with a new governor and fresh perspective, the Reserve Bank is now calling for change. It wants all banks to have the same level of capital, which would require the Big Four to raise another $19 billion in shareholders funds over five years. Local banks are already close to the Reserve Bank requirements and would need to raise only another $1 billion between them.

So, in spite of needing less capital and being afforded the privilege of self-managing it, the ANZ has had this licence taken away due to a “persistent weakness in process” for the past five years.

By its own admission the ANZ will now need to stump up over $277m of extra capital to support deposits and lending. The Reserve Bank statement indicates the amount might be significantly more. Either way it’s a very serious mistake, and we need to know why and how it happened.

The explanations offered by the ANZ are cryptic, and ask more questions than they answer. An internal model for calculating its required capital appears to have been approved for use by the Reserve Bank in 2014, but then decommissioned by the ANZ head office in Melbourne, without our Reserve Bank knowing or approving. How did that happen? In the ANZ’s own words:

“A failure of systems and controls, as well as no verification being undertaken by the bank, meant that the ultimate parent bank decommissioned the [Reserve Bank] approved model without the bank ensuring that it had the necessary regulatory approvals in place to move to a new model.”

That reads like bank speak for ANZ’s head office in Australia making an arbitrary decision five years ago, with major implications for its New Zealand subsidiary, which no one here knew about. And it’s no minor administrative oversight. A bank’s internal risk and capital models are at the heart of their risk management. The Reserve Bank censure, the first of its kind, shows the magnitude of the failure.

The irony here is palpable. The big four banks here emphasise how independent they are of their parents in Australia, with independent governance. Their New Zealand branches have vociferously distanced themselves from the widespread malfeasance discovered this year in the Australian Royal Commission on Banking.

Yet, by its own admission, it appears that the ANZ’s Melbourne head office made a decision five years ago, critical to the operation of ANZ New Zealand, that the New Zealand Board and executives remained blithely unaware of. And that may mean its lending in New Zealand was supported by insufficient capital.

And why was this all disclosed on a Friday? And why didn’t David Hiscoe, ANZ’s CEO, front up and disclose a $277m error and Reserve Bank censure, rather than leaving it to a spokesperson? And where are the press releases and explanations on their website, or the NZ Stock Exchange website?

This raises questions about how much independence and control the NZ branches of Australian banks really have. Sir John Key sits as chairman of ANZ New Zealand, yet also sits on the board of ANZ Australia.

We need to know what really happened here, because the ANZ has over 30% of lending in New Zealand. It is, by quite some margin, the most significant company, let alone bank, in New Zealand. What it does and doesn’t do really matters.

There are questions for the Reserve Bank here too. Why wasn’t this picked up in their 2018 survey on bank conduct and culture? In spite of calls for a Royal Commission into banking in New Zealand, the FMA and Reserve Bank were keen to emphasise that their review was comprehensive enough. To its credit, this may have been out of the scope of their inquiry, and the Reserve Bank subsequently asked the ANZ to perform an internal audit of these process. The failure was duly identified by the ANZ, reported and punished. But without the Reserve Bank inquiry who knows how long this may have gone on?

This failure certainly adds weight to the Reserve Bank’s argument that the big four banks should not be trusted to set and manage their own levels of capital.

The ANZ’s actions here need to be picked up, picked apart and lessons learned for our banks and regulators. The Big Four have 88% of lending, oligopoly-like profits and returns of 15%+. It is critical they operate in a world-leading manner, which the ANZ clearly has not.

Sunlight is the best disinfectant, but throwing out a failure of this magnitude in the Friday trash is not the transparency we need or deserve.

Sam Stubbs is the managing director of KiwiSaver provider Simplicity. 

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Joanna McLeod was so frustrated by the lack of affordable, ethical clothing options that she launched her own ‘fatshion’ label in six months. (Photo: House of Boom.)
Joanna McLeod was so frustrated by the lack of affordable, ethical clothing options that she launched her own ‘fatshion’ label in six months. (Photo: House of Boom.)

BusinessMay 22, 2019

The ‘fatshion’ label making ethical clothes for fat people

Joanna McLeod was so frustrated by the lack of affordable, ethical clothing options that she launched her own ‘fatshion’ label in six months. (Photo: House of Boom.)
Joanna McLeod was so frustrated by the lack of affordable, ethical clothing options that she launched her own ‘fatshion’ label in six months. (Photo: House of Boom.)

Most labels for bigger people aren’t plus-size enough and the larger price tags that go them are “bullshit”, a new Wellington business owner says.

A Wellington fashion entrepreneur says the “fat tax” charged on larger sizes is one of the drivers propelling her to build her own plus-size clothing line.

House of Boom is Joanna McLeod’s answer to what she sees as a gap in the market for quality, affordable and ethical ‘fatshion’.

Frustrated by the lack of options for clothing above size 16, McLeod fired off a tweet last June that quickly snowballed from idea to reality.

The “fat tax”, long seen in bras above a C cup, often extends into clothing lines where the rationale that more fabric should mean higher price tags hits the wallets of fat people the hardest, she says.

UK fashion company New Look was called out by plus-sized consumers for charging 30% more for pieces in its Curve line than the same items in its standard range. “Fabric costs are basically one of the lowest of all your costs, especially if you’re buying at scale, so this fat tax is bullshit,” McLeod says.

Many clothing companies that do a plus size range also only go up to a size 24, which just isn’t high enough for some consumers, she says. New Zealand-based ethical clothing company LaLA’s largest size of 3XL is equivalent to a 22, and its dresses will set you back $300-$500. Fast fatshion company City Chic also has a size 22 ceiling, and although its dresses start at a much lower $100 price point it’s still way above the $30 staples available at Glassons, she says.

Shopping ethically adds another layer of complication to the issue, one that McLeod herself was struggling with. I have money, ethical companies! Take my money. Why was no one catering to me?”

Put it all together and it dawned on her that “someone should set up an ethical but affordable clothing company for fat people. Turns out, that person was me.”

It took just six months from that frustrated tweet to the launch of House of Boom’s first colourful size 16-30 range in December.

McLeod is a seasoned communications professional in her day job so jumping headfirst into a world of strategies, budgets, partnerships, and marketing wasn’t so frightening for her. Yet there would be setbacks.

The biggest decision she had to make was space. Although she had always planned to sell online she also wanted a bricks-and-mortar storefront of “racks bursting with goodness, and a big, comfortable, accessible changing space”. Her accountant was quick to put the kibosh on that dream.

“It seemed like every idea I had, he disapproved of. No, I shouldn’t take an investment from a friend keen to support me. No I absolutely could not afford to open up a retail space, especially if I was thinking of only opening it on weekends as a destination. And I definitely shouldn’t do it in a cheaper area of town like Newtown because people would then associate it with low quality op shops. I left his office utterly deflated.”

McLeod settled on hosting seasonal pop-up shops in her Thorndon home to complement the online store.

While many plus-size labels have a size 22 ceiling House of Boom goes up to size 30. (Photo: House of Boom.)

She is quick to point out that the business got off the ground because she started from a position of privilege. “Getting money to start House of Boom was ridiculously easy. The bank hardly looked at my business plan. I know this is because I said I was keeping my full-time job, and because I also have my mortgage with them. Thirty minutes later I was pre-approved for an overdraft of up to $10,000. Not everyone has such easy access to cash.”

House of Boom’s key points of difference are that the clothes are ethical, comfortable, stylish, affordable, and cut for fat bodies. Her genesis tweet was the beginning of her market research. “I was linked to a company that said they were ethical. I looked at their site. Almost everything was black, over-embellished, and polyester. And $400 for a dress? And they only went up to a size 24? Honey, no.”

Her path was becoming clearer. Cotton, simple, and colourful clothing was what consumers wanted and needed, so McLeod began making contact with manufacturers. “Nisa, the company that employs former refugees, pointed me towards Iona at Umsiko and I will be forever grateful.”

Iona Woolgrove runs her one-woman company Umsiko and is House of Boom’s production manager as well as its pattern maker. This partnership has become the bedrock of the fledgling fashion label. “Essentially I bring problems to Iona and she solves them,” McLeod says. “She takes my clothing ideas and turns them into samples, that I then try on. We fix them to make them perfect, then she drafts the patterns.”

McLeod has quickly learned some hard lessons about the manufacturing stage of production. She lost $1000 after a misunderstanding over dates with an offshore t-shirt maker, and has brought the manufacturing home. “I had to consider it a learning experience and not focus on what else I could have done with that money.”

Now Umsiko’s seamstresses work in their own homes around Wellington and are paid above the living wage, so all House of Boom clothing is made locally and ethically. Manufacturing locally makes it more expensive, with t-shirts starting at $30 +GST and fabric costs on top of that. There are also surcharges for ordering small amounts so McLeod tries to get at least 20 of each item made at a time.

However it all aligns with her business ethics, which include giving back to the community. A portion of the profits from House of Boom’s Rainbow Collection has gone to InsideOUT, a national charity for LGBTI young people. If it all means it takes her longer to quit her day job, so be it. “I won’t quit until I can make $90,000 a year from Boom,” she says.

The House of Boom website launched with underwear and jewellery from other brands in August 2018, and the first Boom-branded clothing hit the site in December backed by a pop-up weekend at McLeod’s home.

She has rallied a troop of plus-sized models she refers to as the Boomettes, “wonderful friends of mine who gave me their time and looked amazing modeling for me”. Seeing a range of bodies modelling the clothes makes a difference for online plus-sized shoppers who often have to take a punt that an item will fit and look good, she says.

McLeod has made other valuable discoveries. Firstly, if you’re hosting a pop-up, invest in good quality clothing racks, because “$13 is too little to pay for something that will be holding up your hopes and dreams”. Second, always get someone to check your work. The 100 or so items from the first season which proudly claim to be manufactured in “Aoteaora” are destined to become collectors’ items. Thirdly, and perhaps most importantly for a clothing line aimed at those who are not usually catered to by fast fashion, sizing is everything. “The skirt sizes were way off. The size 1, which was supposed to cater to sizes 16 and 18, was more of a 20/22.”

House of Boom is gearing up to launch season three later in 2019, with five new products: two dresses, a skirt, a robe, and a t-shirt. “There will probably be about 100 items in season three. It’s an expensive hobby, trying to make life easier for fat people.”