Sir Ralph Norris banking on a long holiday

Ralph Norris at his Epsom home. While he still has his Sydney property, Auckland is where the family is. Photo / Sarah Ivey

Running Australia's biggest bank made Ralph Norris the country's best-paid chief executive and, at times, its most-hated, too. Now, he tells Karyn Scherer, he's looking forward.

Ralph Norris can't have foreseen that when he accepted one of the Lucky Country's top jobs in 2005, angry Australians would one day be burning his effigy in the streets.

But that's exactly what happened when on Melbourne Cup Day last year, the Commonwealth Bank of Australia (CBA) decided to hike its home loan rates by almost double the official increase by the Reserve Bank.

Customers were furious. Just a few weeks previously, CBA had announced a record profit and it had been revealed that as head of the bank, Norris was being paid a whopping A$16.2 million ($21.4 million) a year. That's more than $400,000 a week.

To make matters even worse, he was in China the day the increase was announced. The Herald Sun labelled him the "runaway banker": "Having orchestrated the pre-Christmas pilfer of his customers' savings, Commonwealth Bank chief Sir Ralph Norris remains at large, missing in action, unaccountable to a public baying for blood," it fumed.

Prime Minister Julia Gillard urged the public to "vote with their feet" and change banks, and someone sprayed graffiti across the wall protecting Norris' flash pad in one of Sydney's most expensive suburbs. For a while, he used a secret entrance.

Norris subsequently lost A$7 million in pay when the bank's customer satisfaction ratings plummeted. Meanwhile, the Australian Government has made noises about a super-tax on bank profits, and a cap on executive salaries.

But a year on, the just-retired Norris seems remarkably philosophical about the entire episode. Doesn't it annoy him that his six years in the job will probably be forever remembered for this singular public relations disaster?

"No, it doesn't bother me," he grins. "It's going on again right now."

And he is, of course, right. Spooked by a slowing economy, the Reserve Bank of Australia last week lowered its official cash rate. However, it took the major banks a full two days to decide to pass on the cut, and only after Treasurer Wayne Swan took to Twitter to urge them to do so.

On Wednesday, Westpac chief Gail Kelly warned that any future cuts in mortgage rates could not be guaranteed.

This is not just of academic interest to New Zealanders, given that our major banks are also Australian-owned, and are facing similar pressures.

The problem, Norris insists, is that the public doesn't appreciate how much the international banking scene has changed since the global financial crisis. The official cash rate, he agrees, was once a good proxy for banks' overall funding cost. But thanks to various factors, including new liquidity rules and nervousness about Europe's situation, wholesale money now costs much more than it used to.

For a three-year term, for example, big banks could once fill their coffers at just a sliver over the official cash rate. These days they are paying around 2 percentage points more.

"It's similar to the oil industry - when the oil industry has to pay more for their oil, you see an increase at the pump," Norris suggests. "There's a lot of disinformation and politicians are great at trying to deflect any responsibility."

For their part, politicians have pointed out that Australia's big banks nevertheless managed to make a record A$25 billion in cash profits this year. They also claim the banks have a much higher return on equity than their counterparts in the United States, Britain and Europe.

In his report for the Government at the end of last year, Australian Treasury Secretary Ken Henry noted the net interest margin of the major banks had fallen from just below 6 per cent in the mid-80s to just above 2 per cent, which he attributed mostly to competition. But in the past couple of years it has crept up again.

Norris can probably recite his retort in his sleep: "I think it's very easy to play the populist card, calling banks greedy for making big profits. The fact is that banks do make big profits, but they are big businesses, and it's not out of line with the size of their businesses."

And in any case, many other large businesses, such as supermarkets and mining companies, are making even higher returns, he argues. He's still smiling while saying this.

Norris is notoriously affable, and although he has previously admitted to having a temper, on the day we meet it's almost impossible to get him to frown. But it's no wonder he's so relaxed - it's a gloriously sunny day in Auckland, and he has been officially retired for at least a week.

The 62-year-old announced his impending departure from CBA in July and since then has been feted at no less than 15 farewell functions from Sydney to London.

His leaving present was a painting by one of Australia's most famous artists, Arthur Boyd, of the Shoalhaven River in New South Wales. "It's a very wonderful painting," he enthuses.

If his Epsom home is any indication, he has good taste in art. Although he and wife Pam have kept the house in Darling Point, they have decided to return to New Zealand to live.

Norris notes that he was in his mid-50s when he moved to Australia, forcing him to leave behind most of his lifelong friends, as well as family. Although his son is now an investment banker in New York, both his daughters - and his five grandchildren - remain in Auckland.

"My wife and I see family as a really important part of our lives, so coming back here was always our intention. If our daughters had moved to Sydney we would have stayed in Sydney, but both their husbands have their own businesses here in Auckland."

Although he has agreed to join the board of Fonterra, and Origin Energy in Australia, he is not seeking any more directorships at this stage.

The CBA job was his third as CEO - he preceded Rob Fyfe as head of Air New Zealand, helping to rescue it from near-collapse, and before that headed CBA subsidiary ASB Bank.

A former computer programmer and techie at heart, at ASB he was instrumental in the launch of BankDirect, the first online bank in New Zealand.

More than a decade on, the BankDirect experiment as a standalone brand appears to have failed, despite the initial attraction of lower home loan rates and fees. It has never attracted a large customer base and no longer competes with its parent. But online banking is now mainstream.

Norris has always been known as a champion of customer service - a reputation which helped him become one of this country's best known, and most highly regarded, bosses.

While the punters in Australia may not have totally forgiven him for the Melbourne Cup Day mark-up, the investment community has generally been glowing. Initially sceptical about an upstart Kiwi being appointed to Australia's largest and most iconic bank, most analysts and brokers have credited Norris with transforming CBA from a fusty institution unloved by many of its staff and clients, to one that is now seen as much more customer and investor-friendly.

But as far as public perception is concerned, it probably also helps that Australian banks are now recognised as being among the world's strongest - a trait that has suddenly become very attractive in the wake of the global financial crisis.

In fact, Norris reveals, there was a noticeable run on the smaller banks in Australia at the nadir of the crisis.

Being the largest bank in Australia, CBA was seen as a safe haven and it began to notice a strong inflow of deposits from the smaller banks, credit unions and building societies. So it came as no surprise to Norris that the Government decided to put in place the retail deposit guarantee scheme "and that quietened things down virtually overnight", he recalls.

"I think if they hadn't put that in place a couple of smaller institutions could have failed because they were being hit by so many withdrawals. That would have been the worst thing that could have happened for the Australian finance sector because it would have been seen internationally as potentially being weak."

There were also some nervous moments for CBA when US mortgage provider Countrywide Financial suddenly started to call on what are known as standby lines.

"Banks internationally do provide standby lines, but you've got to be careful because people only really want to draw on them when they're in trouble, and we saw that with Countrywide Financial. The banks in Australia ended up having those lines called, and I have to say I was pretty nervous about whether we would get our money back."

As it happened, the money did get repaid, and even after the global financial crisis swept around the world, bad debts from its business customers didn't blow out quite as much as was feared.

Not long after he joined CBA, in early 2006, Norris had initiated a complete review of its risk management practices. As a result, the bank braced itself for some fallout in the private equity sector, and liquidated a small portfolio of collateralised debt obligations, or CDOs.

But it was the A$3 billion collapse of Queensland financial advisory firm Storm Financial in 2009 which Norris now cites as his biggest regret. CBA was the biggest provider of credit to the firm, and its practices came under fire from many victims of the collapse.

CBA also got its fingers well and truly burned with ABC Learning, the childcare empire founded by Eddy Groves that proved to be a house of cards. CBA was reported to have loaned ABC at least $500 million. And on a much smaller scale, the Australian Financial Review claimed this week that CBA was selling a $70 million loan to TV3 owner MediaWorks for around 50 cents in the dollar.

"Banking is a risk business - you are going to lose money from time to time," Norris shrugs. "What you endeavour to do is make sure that systemically you don't have weaknesses in your risk management processes that are going to open you up to widespread default because of the fact that you haven't lent appropriately."

Overall, Australia and New Zealand have fared better in the GFC than many other countries because of our strong regulatory system, he believes. The US system, he says, is a "mess" because it has too many regulators, as a result of political lobbying.

Norris has always argued for a single regulator for Australia and New Zealand, and just a couple of years ago, he appeared to throw a wobbly in the wake of talk of a banking inquiry in New Zealand, warning that the Australian banks might at some stage be keen to get rid of their New Zealand subsidiaries.

He now concedes that's looking unlikely in the near future. "Who would buy them? And where is the growth going to come from?" he scoffs.

"I would have to say I would not have liked to have been in New Zealand during the GFC from the point of view of a business or a mortgage borrower if the banks here hadn't been owned by Australian banks ... New Zealand would have potentially had a major problem. You just have to go back to the early 1990s when the BNZ effectively failed. You had a range of financial institutions here, such as PSIS and DFC that were locally owned - then just look at the finance sector, and how how poorly regulated that was."

He also warns, however, that new regulations which require banks to hold much more cash than they have in the past will come at a price.

"Governments are very quick to agree to these things, and then very quickly try and distance themselves from the cause and effect. The effect is going to be a higher cost of money as a result, and that has to be absorbed somewhere in the system. That means, I think, that shareholders will probably see a reduction in returns and customers will see an increase in the cost of borrowing."

Likewise, because banks will now have lower leverage, it is potentially going to be harder to even get a loan in the future, he warns.

Not that Norris could ever be described as a pessimist. He insists he is upbeat about New Zealand's future, given that we are much closer these days to our most important markets, and with food being the new oil when it comes to exports.

During his time at CBA he got to know some of China's top politicians and bureaucrats well, and is sceptical that any economic downturn in China will be particularly damaging or long-lasting.

"I think some people in the world have this wishful thinking that China will go bust ... There will be times when a wheel falls off, but I don't think all the wheels will fall off."

He is also confident that New Zealand will continue to be an attractive destination for Chinese and Indian tourists, as well as Australians. Norris has been delighted at how many Aussies he has persuaded to visit New Zealand for the first time, who now regularly return.

"They'd always seen it as a backwater - a slightly bigger Tasmania. I now have many of them who have bought holiday homes here, or come skiing in Queenstown or Wanaka every year now, and just rave about New Zealand and what it's got."

And if you think Auckland's traffic is bad, then Sydney's is much worse, he suggests. "In Sydney if you want to go any reasonable distance you're probably paying $10-$15 in tolls before you get to anywhere you want to go. And a lot of the roads have been undersized."

Despite that, Sydney's airport train is heavily subsidised because it is so underused, he notes - which should be a lesson to Auckland. Although we could certainly do worse than try to mimic Australia's resources boom, it seems.

"I know there are environmental concerns and things of that nature and I fully understand that, but you look at the Canterbury Basin - it has got some very attractive geological structures in regard to gas, oil and condensate and they may well prove to be transformational for the NZ economy. The companies that are obviously going to do the prospecting there have not yet got well underway, but my understanding is the prospects are very promising."

That is, if the whole world doesn't implode from Europe's financial problems.

Norris agrees that everyone seems to be clinging to hope that it can still be sorted out. "Whether that optimism is misplaced is another question ... It could have the potential to completely derail the financial system, but I would hope that's not going to happen. In my view the French and the Germans drove this really hard - maybe the French and the Germans will have to pay."

In any case, the European situation does demonstrate why common currencies are not necessarily a good idea, he believes. It can indeed be a good thing for a country to be able to devalue its currency to trade its way out of a hole.

Norris insists he's always been sceptical about the idea, raised many times in recent years, of New Zealand adopting the Australian dollar. He believes New Zealand products would become much less competitive if that were to happen, and more production would move to Australia.

At present, he notes, we are seeing companies such as Heinz moving production the other way, because the New Zealand dollar is currently more competitive.

"The worst thing we can do is keep on looking across at Australia and thinking we are so far behind Australia in remuneration and things like that. That's the same as someone in Wisconsin or Idaho looking at New York. The average income might be lower than in New York, but so is the price of houses and things of that nature.

"The fact of the matter is you've got to look at what your standard of living buys you, and people are looking at different sorts of indices to establish what actual quality of life quotients are about as well, rather than pure GDP numbers."

Goodness me - the former chairman of the Business Roundtable sounds as if he approves of Treasury attempts to measure "national happiness". I'm not sure Roger Kerr would have approved.

However, Norris' own happiness index seems to be rising nicely. The main problems on his plate right now are the usual hassles associated with moving countries, like sorting out a new mobile phone number and buying a new car. He and Pam are also planning to renovate their hideaway on Waiheke Island - an 8.5ha property at Cowes Bay currently valued at $5.9 million.

Although he has yet to decide which golf club to join, he has already managed a game of tennis on his court at home, just a stone's throw from Cornwall Park. And he has kept up his daily "wog" - a cross, apparently, between a walk and a jog.

"It's amazing how friendly people are compared to Sydney," he beams. "When I walk around my local park there, people are so much in their own bubble; they are just totally absorbed. Whereas here people have got the time to say hello and smile."

Maybe it's because our mortgage rates are so low at the moment - cheaper, for once, than Australia. But if he is to be believed, then who knows how long that's going to last?