Rabobank was heavily invested in the dairy lending boom. Photo / Supplied
Rabobank’s former New Zealand chief executive wrote to his board in 2017 expressing concern that he was not in full control of the company, the Herald can reveal.
Rabobank New Zealand Ltd, one of this country’s largest rural lenders, was in effect run out of Rabobank’s Australian operation, former NZ CEO Daryl Johnson claimed.
The letter was significant because under New Zealand’s banking rules, local chief executives are required to have managerial control over their banks and must sign regular disclosure statements to prove it.
Johnson, who declined to comment for this story, wrote in the letter that he had “a number of concerns” regarding his ability to fulfil his “regulatory responsibilities in the current organisational context.”
He said that one senior local staff member was sacked by Rabobank’s Australian operation without Johnson and the staffer’s New Zealand manager being informed beforehand.
The letter formed part of whistleblower documents that appear to show Rabobank falling below the regulatory standards expected by the Reserve Bank for several years. The Reserve Bank investigated the complaints, but has now declined to comment on the investigation to the Herald.
In one case, Rabobank took years longer than promised to fulfil a pledge it made to the Reserve Bank to have a local audit and risk committee, which a whistleblower alleges was tantamount to misleading the Reserve Bank about the level of Australian control over Rabobank’s local operation.
The allegations were put to Rabobank. A spokesperson for the bank declined to comment on their substance.
“During the period outlined in your email below (2011-2019), the level of local control of Rabobank NZ Ltd was one of the areas that came up for discussion at our regular meetings with the RBNZ. Over this timeframe, we enjoyed a close and positive working relationship with the RBNZ – as we do today - and all actions related to this matter were resolved to the satisfaction of the RBNZ,” the spokesperson said.
“In the years since, additional governance changes have been made at Rabobank NZ Ltd which have further solidified local control and accountability of our New Zealand operations,” they said.
Rabobank New Zealand is the local subsidiary of Dutch parent bank Coöperatieve Rabobank U.A. With assets of $14.78 billion it is smaller than the next largest bank, Kiwibank, which has assets of $32b and well below our largest bank, ANZ which has assets of $201.1b.
Rabobank focuses on rural lending where borrowers are often highly leveraged.
The Reserve Bank, which regulates most of what banks do in New Zealand, has strict rules in place to ensure that even when a bank is foreign-owned, it must have a significant and relatively independent local presence to ensure that its local customers are not looked over at the expense of overseas shareholders.
This is designed to ensure that all banks - regardless of where their owners live - are invested in their local customers and the strength of the local banking system.
New Zealand-incorporated banks must have a local chief executive who has a direct reporting line to the local board, which is required to act solely in the best interests of the local subsidiary bank (and not its shareholder).
Overseas banks operating a branch in New Zealand must also have a local chief executive, who must have sufficient confidence in the running of the New Zealand branch of the company that they can sign off regular disclosure statements about the bank’s New Zealand activities.
Leaked documents show the degree of local control over Rabobank New Zealand had been a concern of the Reserve Bank. A letter obtained by the Herald shows Rabobank promised to establish a significant level of local control by 2012 by establishing a local Board Risk, Audit, and Compliance Committee.
A November 2017 letter from the Reserve Bank shows these requirements were only fully met in about 2017.
A whistleblower source alleges the requirements were not fully met until 2019.
Rabobank was asked when this committee was actually established – in 2012, 2017 or 2019 - but declined to answer.
Johnson warned in his letter to then board chair, Sir Henry Van Der Heyden, that he believed the bank was not giving the full picture to the Reserve Bank about the strength of its local reporting lines. Johnson said he was “concerned that in reality, these reporting lines are in fact ineffective, due to the lack of actual authority vested in [his] role”.
Van Der Heyden declined to comment, referring questions back to Rabobank.
Johnson said the Reserve Bank had made it clear to Rabobank in 2012 that the CEO’s “primary” reporting line should be to the board, and that his other reporting line, to the managing director of the Australian and New Zealand Rabobank operation (RANZG) should be “secondary in nature”. These reporting lines complied with the need to have significant levels of local control over the local operation.
But Johnson said his employment contract with the bank was “unclear” on the question of who his primary reporting line was to but “in reality” it was to the bank’s Australia-based managing director Peter Knoblanche.
“Actual authority vested in the CEO New Zealand role is minimal and there are no New Zealand-specific committees with decision-making authority. I am doubtful that the Reserve Bank would be satisfied that their requirements are being properly met if they were aware of the reality of reporting arrangements and authority levels,” Johnson wrote in his 2017 letter.
“I have concerns for both the bank and for myself regarding reputational damage should the Reserve Bank form the view that we are not in substance complying with their requirements,” he wrote.
He said the Australian business even reached over the New Zealand arm to fire people without the prior knowledge of their New Zealand bosses.
Nothing appears to have come from the letter, and Johnson was one of a series of high-profile executive exits from the bank in the two years after it was sent.
Back in October 2011, the Reserve Bank was informed by Rabobank that a suite of measures would be rolled out to make the New Zealand subsidiary more independent from Australia - in line with New Zealand rules.
The measures included appointing a New Zealand resident chairperson and making sure that half of the bank’s independent directors were New Zealand residents.
Furthermore, by April 1, 2012, “separate, fully constituted and minuted Board and BRACC meetings” would be held for Rabobank New Zealand.
BRACC means Board Risk, Audit, and Compliance Committee. Essentially it is a powerful advisory group - often of directors - who take an independent look at some of the risks facing an organisation, with a view to mitigating those risks, and take responsibility for the bank’s financial reporting.
In 2017 the Reserve Bank commissioned a review from Deloitte on how locally incorporated banks’ directors were fulfilling their duties. Overall, the Reserve Bank was pleased, writing that banks on the whole were doing their job.
In November 2017, Andy Wood, the Reserve Bank’s senior manager of supervision, wrote to van der Heyden with the findings of the review.
The letter praised Rabobank for the “recent” establishment of separate, New Zealand-specific audit, risk and compliance committees – something Rabobank had promised to do five years earlier.
“[We] are pleased with the establishment of a separate Board Audit Committee (BAC) and Board Risk and Compliance Committee (BRCC) for the New Zealand operations,” the letter said.
However, a whistleblower alleges that the Reserve Bank was misled and Rabobank was still operating joint Australia and New Zealand committees in 2017 and that New Zealand-specific committees were only established on 28 February 2019.
The Reserve Bank and Rabobank declined to comment on whether the Reserve Bank was misled.
The Reserve Bank said Rabobank had met its requirements but urged the Bank to continue to beef-up local capabilities.
The whistleblower’s concerns were investigated by David Flacks. The Herald asked the Reserve Bank for information on the outcome of that review, but the bank declined to comment. The final report of the investigation has never been released. The whistleblower was not given a copy, even in redacted form – they were only given a “debrief” on its finding.
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