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.