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Who owns corporate Australia?

By Murray Hunter - posted Monday, 11 March 2013


If you go and ask the "average" Australian on a Melbourne or Sydney street who owns the banks and large public companies in Australia, most will answer "Australians through superannuation and mutual funds". This belief gives Australians a sense of pride in "Australian private enterprise", and may even assist Australians grudgingly accept high bank charges and interest rates; "after all we own the banks".

However if one examines the annual reports of most of the large Australian public companies, names like HSBC, JP Morgan, Citibank, and BNP are very prominent in the tops 20 shareholders lists. There has been a major shift in the Australian corporate ownership-scape over the last decade. And a silent one at that.

Let's go back to the 1980s when Bob Hawke was Prime Minister of Australia. The ex-ACTU head did more than any other prime minister to liberalize the Australian economy. Hawke began deregulating the financial system, dismantled the tariff system, floated the Australian dollar, and privatized the Commonwealth Bank of Australia (planned under Hawke, executed under Keating). What was important here, there was no longer any distinction between savings and commercial banks and foreign banks could apply for licenses to operate directly in the Australian retail market. Keating followed on this liberalization path with the catch cry of creating a "level playing field".

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These liberalizations allowed foreign investors to come into the Australian market, however foreign banks found it extremely difficult to start-up from scratch and compete with the local banks. However with the Asian financial crisis of 1997, and subsequent economic downturns within the Australian economy, foreign equity started slowly trickling in and buying up Australia's prime corporate assets. Mutual and investment funds were specifically important as these made excellent vehicles for investment in corporate Australia.

Today the ownership-scape of Australian banks is very different from the traditional past where Australian banks were owned by the "average Australian" through superannuation and investment funds. Although major shareholders are in fact mutual and investment funds, they are now managed by foreign interests who appoint their "proxy" directors to the boards, as the table shows.

Table 1. Major Shareholders in Australia's "Big Four" banks

 

 

Company

Combined HSBC (Nominees)

JP Morgan Nominees

Combined Citicorp

1

Commonwealth Bank

14.10%

11.13%

4.18%

2

National Australia Bank

16.94%

14.47%

3.33%

3

Westpac Bank

15.10%

12.27%

4.60%

4

ANZ Bank

18.88%

15.65%

5.41%

Apart from the top four shareholders shown above, an inspection of the data in the respective annual reports shows that most of the other top 20 shareholders are companies with a stake in more than one big bank. Moreover, ownership figures for the second tier banks, Bendigo and Adelaide Bank Limited, Suncorp-Metway Limited and Bank of Queensland Limited, show they are also owned by the same organisations that own the big four.

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When one looks closely at who owns the big four banks it becomes clear that there is a lot of common ownership, suggesting that those banks may not in fact be independent, competing entities.

Due to the complex nature of the legal structures of shareholders and ways that the various shareholders work together, it is virtually impossible to determine who really controls the banks. Many of the other minor shareholders in the banks also have HSBC, JP Morgan and Citibank, along with many other European and US banks as their major shareholders. This argument is often countered by stating that HSBS, J.P. Morgan and Citibank are only investing on behalf of small investors. What is of issue here is control and it is the prerogative of the funds to appoint a director to the board of their choice, not the investors. These figures are also consistent with a recent worldwide study showing that most of the world's company equity is controlled by no more than 25 companies, of which have many of these companies have equity in the Australian banks.

One of the most interesting aspects that complement the cross-ownership in the big four Australian banks is the number of cross directorships in other foreign banks and financial institutions that exist in a wide manner. Studies have shown how even small cross-shareholding structures, at a national level, can affect market competition in sectors such as airline, automobile and steel, as well as the financial one.

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About the Author

Murray Hunter is an associate professor at the University Malaysia Perlis.

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