ME Bank is yet to deliver a dividend to the 26 industry superannuation funds that own it, with an MP speculating the lack of returns could be at odds with a responsibility to invest in members’ interests.
The chief executive of Members Equity Bank fronted the House of Representatives standing committee on economics on Thursday after the bank copped heat for changing redraw minimums for home loan customers without properly notifying them.
The bank has since apologised and changed back the redraw limits for customers who wanted it.
UniSuper, HESTA and Hostplus are among the industry funds that own the bank, with the largest shareholding belonging to AustralianSuper, at 20.4 per cent interest, while the smallest is under 1 per cent.
ME Bank CEO Jamie McPhee stated there is no one dominant shareholder, and the institution is run independently of the funds, with reports to the shareholders twice a year.
The funds have invested capital and bought shares in the bank since it was founded in 1994, but as revealed by Mr McPhee to the parliamentary committee, the bank has never paid the funds any dividends.
Its last capital raising in 2017 saw the bank raise $40 million from its shareholders.
Chair of the committee Tim Wilson called it “a curious investment by a fund”. He asked Mr McPhee if ME Bank is considered by the super funds to be an investment or a member service.
“You’d have to ask the fund their view of that,” the ME Bank CEO responded.
“What I can say, is we’re run by an independent board.”
Mr Wilson countered: “Sure, but I mean it’s a very strange thing, if you’ve got a sole purpose test where money is supposed to be invested on behalf of super fund members into entities to obviously make a profit and huge volumes of capital being invested into a bank where it has never returned a dividend, how that could be consistent?”
The profit the bank has generated, Mr McPhee said, has been returned to the business to fund its growth. Each year, it has been valued by a third party, with funds seeing a capital-based return based on the valuations.
But that could change in the future, with Mr McPhee hinting there has been discussions around paying shareholders, if the bank has generated excess capital over what it needs to meet its regulatory and growth requirements.
“It’s a case of looking forward and when the bank will be in a position to pay dividends,” he said.
“That decision gets made on an annual basis on the back end. It [needs] clarity around profitability, clarity around its growth targets and should it have enough capital to meet the growth targets, if there’s surplus capital over the regulatory requirements, then it gets distributed in income. There is no set target for that level as yet, that is just something that is discussed on an ongoing basis.”
But Mr McPhee said it was difficult to give a timeframe for when the bank would be able to start paying dividends.
“That’s challenging right in this moment because we don’t understand impacts like all banks of COVID-19,” he said.
When asked if the bank had an approximate time before the pandemic, he said the bank had only just started to consider paying dividends.
Mr Wilson said he would seek further clarification from the funds on whether they classify ME Bank as a member service or an investment.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].