David Farrar: The very dodgy $12.9b figure

I blogged in early August on how MPs appear to have been scared into supporting a retrospective law change to protect ANZ and ASB Banks form a six year old law suit over their failure to make correct disclosures with some of their loans, on the basis that the banking system could be at risk with a potential cost of $12.9 billion.

I was always sceptical of this number, as the lawyers for the plaintiffs actually offered to settle the case for $300 million. But I’ve now read the advice from the Reserve Bank, and it is even worse than I imagined.

Here’s some key takeaways from the Reserve Bank advice.

• The RBNZ’s $12.9 billion scenario was on an assumption that every single bank in New Zealand would refund every single residential mortgage customer all interest and fees for a full four years.
• The actual breach periods are much shorter. ANZ (which has around 30% of the mortgage market) has said it breach period was just over 12 months. Westpac and BNZ disclosed breach periods of 2-5 days only.
• Some banks have already repaid customers: Westpac and BNZ self-reported their breaches to the Commerce Commission and repaid customers in full under the CCCFA. They have no further liability for those breaches.
• Under the law, claims must be brought within three years after the date of disclosure. This means the vast majority of any potential claims are already time-barred.
• The RBNZ’s own analysis noted “nothing… gave them credible reason to believe there was large-scale liability.” The $12.9 billion was an extreme sensitivity test, not a real-world estimate.
• Market share maths makes $12.9 billion impossible: ANZ is 30% of the market and has said their liability is under $300 million. Westpac and BNZ are ruled out and they are 40% of the market. ASB were in breach for four years but they are just 20% of the market.

So MPs should ask themselves why would they retrospectively amend the law to protect two banks from a lawsuit, when there clearly is no risk to the banking system stability – just to the profits of the two banks, which were $3.75 billion last year.

David Farrar runs Curia Market Research, a specialist opinion polling and research agency, and the popular Kiwiblog where this article was sourced. He previously worked in the Parliament for eight years, serving two National Party Prime Ministers and three Opposition Leaders