A marriage of convenience: Citibank, Hawke-Keating Labor and foreign bank entry into Australia.

Knowles, Harry ; Patmore, Greg ; Shields, John 等

Until the early 1980s, the Australian labour movement viewed private banks, whether local or foreign-owned, with deep distrust. Labour historians have highlighted Australian Labor Party (ALP) and union hostility toward the 'Money Power', culminating in the failed attempt by the Chifley Labor Government to nationalise the private banking system in 1947. The shift by parliamentary Labor towards neoliberalism following the defeat of the Whitlam Government in 1975 transformed the Party's approach to private banking, especially with regard to foreign-owned banks. On Labor's return to power federally in 1983, Labor neo-liberals, most notably Treasurer Paul Keating, pursued deregulation of the monetary and banking systems primarily as a key driver of their economic reform agenda but also as a means of diluting the economic and political influence of the domestic banking establishment. A major beneficiary of federal Labor's partial ideological volte-face was the US banking giant Citibank.

For decades, Citibank had lobbied both Labor and non-Labor Governments to obtain full bank status--and hence the right to raise retail bank deposits in direct completion with domestic banks--in the tightly regulated Australian banking system. While Citibank had sought to gain access to Australian banking as far back as 1916, its Australian ambitions were repeatedly thwarted by the regulatory protections afforded to the domestic banks and restrictions of foreign ownership and exchange transfer. Nevertheless, Citibank's interest in Australia increased substantially during the 1960s and in the latter stages of the post-war boom it acquired substantial minority interests in several prominent Australian non-bank financial services firms, including Industrial Acceptance Corporation (IAC) and venture capital firm CitiNational, as well as a half share in consumer credit firm First National City Bank of New York (FNCB)--Waltons. Then, between 1974 and 1977, Citibank played a pivotal role in averting a major corporate crisis in Australia by taking first majority ownership then full ownership of IAC, with conditional approval from the authorities in Canberra and New York. It was this development that provided the bridgehead for Citibank's eventual success in achieving full bank status in Australia. Its aspirations eventually found favour with Treasurer Keating, whose distrust of the domestic banking establishment appeared to outweigh any lingering attachment he may have had to the xenophobia of his mentor, former New South Wales (NSW) Premier Jack Lang, against global finance capital. Citibank was to gain its banking licence in 1985 and was the only foreign bank at that time to obtain a licence without an Australian domestic partner.

Drawing on Australian and American interview testimony, as well as on hitherto untapped archival material, this article explores both the long-term institutional and economic backdrop to Citigroup's attainment of an Australian banking licence and the complex political and policy machinations that culminated in federal Labor favouring this pillar of US multinational capital with a stand alone licence. The article traces the shift in Labor's outlook towards foreign banks during the 1970s and early 1980s, examines Citibank's motives and explores the policy and strategic backdrop to Citibank's emergence as one of the foreign institutions favoured with a domestic banking licence by the Hawke-Keating government.

The article is structured as follows. Section 2 examines the historiography of Labor and banking with particular reference to how historians have interpreted political Labor's antipathy to the Money Power. We also highlight the duality implicit in post-war Labor Keynesianism--informed simultaneously by anti-bank populism and economic progressivism--both of which fed into the economic agenda of the Hawke-Keating government. Section 3 overviews Citibank's longstanding Australian aspirations and the formidable barriers to entry faced by foreign-owned banks. Section 4 explores Citibank's attempts between 1965 and 1972 to circumvent the steep entry barriers to the Australian banking system, most notably by means of a joint-venture arrangement with non-bank retail lender, Waltons, and part-ownership of new local venture capital firm CitiNational. The next section (Section 5) examines the watershed event in Citibank's fortunes in Australia--its rescue of IAC following the property market crash of 1974-75, firstly by means of majority equity acquisition (1975) then full ownership (1977). Section 6 then considers the consolidation of Citibank's domestic merchant banking activities during the era of the Fraser government and its continued campaign for retail bank status in the lead up to deregulation of the Australian monetary and banking system. Section 7 details developments leading to Citibank being the only foreign bank to receive a banking licence in its own right in 1985. The final section sums up the argument and conclusions, with particular focus on the mid-1980s detente between Labor and this most formidable banking multinational.

Labor and the Banks: An Historiographical Overview

Labour historians have traditionally focused their attention on the labour movement's preoccupation with the Money Power, which portrayed corpulent financiers robbing working people of the products of their labour through the control of banks and other financial institutions. The bank crashes of the late 1880s and early 1890s crystalised these ideas, which were sharpened further still by the experience of the 1930s Depression. Due to the links between the Australian bankers and British financiers, the Money Power was viewed as reinforcing imperial power, with its class distinctions, against the desire of Australians to develop a distinctive national identity. There was also an element of anti-Semitism, with most of the bankers and financiers being portrayed as 'scheming Jews'. The image of the 'Fat Man', the famous labour villain and enemy of the people, was used frequently in the labour movement press to portray the Money Power. (1)

The solutions put forward to deal with the Money Power by the labour movement focused on state banks, which would serve the common good rather than private interests. State-owned banks, it was assumed, would have a competitive advantage as they were non-profit organisations and would stimulate domestic savings, provide cheap loans and eventually force the private banks out of business. These ideas underlay the establishment of the Commonwealth Bank of Australia by the federal ALP in 1911 and by the subsequent creation of a raft of government banks at a state level. However, the labour movement's hopes for the Commonwealth Bank were diminished by 1924 legislation enacted by a non-Labor Government, which created a board of management that had representatives from private capital. Labor's concerns about the board of management of the Commonwealth Bank were confirmed when the bank seriously undermined the Scullin federal Labor government during the 1930s Depression by refusing to supply it with funds for unemployment relief and distressed farmers. The Money Power was also seen as responsible for the collapse of the NSW Government Savings Bank and the dismissal of Lang's state Labor government by the Governor, Sir Philip Game. (2)

The private banks continued to frustrate subsequent federal Labor governments. Ben Chifley, Curtin's Treasurer and successor as Prime Minister, was strongly influenced by Keynesian ideas of state intervention and the centre-piece of Labor's plan for post-war reconstruction was full employment. Chifley introduced legislation to extend the state's control over the Australian banking system as part of a desire to maintain a tight control over the economy. Labor's legislation also sought to curb foreign control of Australian banking. The labour press praised the legislation for its attack on private banking, both domestic and foreign, and Labor passed the legislation through its control of both houses of federal parliament. However, Labor's actions galvanised capitalist interests and led to a successful High Court challenge that ruled part of the legislation invalid. The Chifley government responded by moving to nationalise the banks, but the bank nationalisation was ruled invalid by the High Court and later by the Privy Council in London. The bank nationalisation issue remained an important concern for non-Labor forces in the 1949 federal election, which saw the defeat of the Chifley Labor Government. (3) As Peter Love notes, Labor had not predicted 'a full blooded capitalist mobilisation' in their efforts to attack the Money Power through nationalising the banks. The failed attempt at bank nationalisation emboldened the domestic banks to reinforce their dominance over domestic savings and lending activity and to reclaim dominance over trading bank activity from the Commonwealth Bank, an objective substantially achieved by means of the regulations on banking introduced by the Menzies Coalition Government in the 1950s and particularly via the Banking Act 1959. (4)

Enmity between federal Labor and the domestic banks flared again as a result of the 'loans affair' during the term of the Whitlam government. The 'affair' arose from the efforts of Whitlam and several ministers, including Rex Connor, the Minister for Minerals and Energy, to raise 'petro dollars' on the international capital market to ensure public participation in national development projects. Through the use of a Pakistani financier, they bypassed the established banks that had traditionally raised funds for Australian governments. Connor also refused to comply with Whitlam's repeated requests for all information relating to the negotiations for the loans and ignored instructions to cease negotiations. The 'loans affair' led to Connor's resignation and contributed to the demise of the Whitlam government. (5)

The ALP's concern with the Money Power was built more on a populist rather than a socialist agenda. Labour historians such as Peter Love and Ray Markey have highlighted the importance of populism on the early Labor Party. Populism was not a distinct ideology, but a mixture of ideological and rhetorical tendencies that idealises 'the people' and their fight against corrupt and powerful groups such as monopolists and financiers. Labor populism also valorised the small entrepreneur, especially initially the farmer for defending traditional values against social change. Historically the Australian Workers Union (AWU) was an important vehicle for Labor populism, which also incorporated policies such as land reform, compulsory arbitration and the White Australia Policy. While populists and socialists agreed on issues such as state banks and the nationalisation of monopolies, populism did not imply the end of capitalism. (6) During the 1930s Depression, ALP moderates briefly joined forces with the Douglas Credit movement, which likewise did not seek to change the basis of Australian capitalism, in its fight against the Money Power. Exponents of Douglas Credit believed that by siphoning off a significant proportion of the purchasing power, financiers disrupted the efficient operation of the capitalist system. (7) On these populist foundations, Keynesianism became a strong influence on the Curtin and Chifley Labor governments in terms of banking policy, with the push towards bank nationalisation being driven by the concerns of managing a capitalist society rather than an ideological commitment to state socialism. (8) As such, the Labor Keynesianism of the 1940s can be said to have been Janus-faced: both looking back to the Money Power populism of the pre-World War II era but also anticipating the economic managerialism that characterised the neo-liberal agenda of the Hawke-Keating government. In essence, it was Labor neo-liberalism, coupled with a tinge of pre-war populism, which opened the way for Citibank to achieve full bank status in the Australian financial services sector. In the view of neo-Liberals like Keating, it was far better to use the foreign Money Power to disestablish the domestic banks than to perpetuate the latter's grip on domestic credit and Australian households.

Global Designs and Abortive Engagement, 1916 to 1965

The FNCB began as the City Bank of New York in 1812 and operated as The National City Bank of New York (NCB) from 1865 to 1955. From the outset it played a crucial role in financing trade and, as US investors began to move offshore at the beginning of the twentieth century, NCB contributed substantially to the financing of overseas investment projects. The passage of the Federal Reserve Bank Act in 1913 created a Federal Reserve Bank in the US and removed many of the restrictions imposed on US commercial banks. The Act also allowed US commercial banks to establish foreign branches that would assist US corporate interests abroad. Frank Vanderlip, President of the Bank from 1909 to 1919, responded to requests from the bank's largest corporate customers to set up branches where they had manufacturing or distribution interests. A particular focus was South America, where a major success was its first overseas branch, the Buenos Aires branch in Argentina, which opened on in November 1914. Subsidiaries of US firms opened accounts there and other local firms followed. During the 1920s, the number of branches grew to 98 by 1929. For many years, no other US bank came near to matching NCB's foreign operations. (9)

Almost from the beginning of its international expansion, NCB was interested in gaining access to Australia. However, it faced formidable institutional and ideological local opposition; seemingly borne of both the self-interest and British empire-loyalism of the Australian banking establishment and the Australian labour movement's populist fear of the Money Power. In 1916, at the height of World War I, NCB tried unsuccessfully to obtain Treasury approval to set up an Australian banking operation. From 1926 to 1929 NCB also had a representative office in Sydney, but this was soon closed down in the face of opposition from the Australian trading banks, which refused to open an account for it or provide clearing house facilities. In 1939, the NCB again inquired about opening a branch in Australia, but the Commonwealth Bank persuaded it to consider sending a representative instead. (10)

Any further attempts by NCB/FNCB to establish a branch in Australia were halted by an official policy of opposition to foreign banks entering into competition with Australian banks. In 1926, the Australian trading banks were concerned at the possibility of NCB opening branches. The Commonwealth Bank feared that local deposits would be used by the foreign banks for investment offshore and called on the Treasury to restrict overseas operations in Australia. In evidence before the Commonwealth Royal Commission on Banking in 1936, the trading banks remained strongly opposed to the entry of foreign banks. Licensing was viewed as a means of preventing foreign bank entry and this requirement was included in the Chifley Labor government's Banking Act 1945. While a range of foreign organisations were subsequently prevented from obtaining a banking license, including the American Express, Chase Manhattan and the Bank of Tokyo, following the election of the Menzies federal Coalition government in 1949 the first tentative signs of liberalisation became manifest. From 1952, the Bank of Tokyo made a number of attempts to re-establish its branch in Australia (closed at the onset of the war in 1941), and in 1957 the Treasurer in the Menzies government, A.W. Fadden, allowed it to open a representative office in Sydney, albeit under strict conditions. (11) There was concern about the use of the word 'bank' and the representative office was to confine its activities to matters such as gathering information concerning the Australian economy and facilitating trade between Japan and Australia. The number of representative offices of foreign banks in Australia grew to seven in 1965 and to 33 in 1970. (12) While this constrained access was a source of irritation to foreign banks, they offered 'some hope that policy would change'. (13) There were some exceptions to the restrictions such as the Bank of New Zealand. Such banks had a long history of financing trade between Australia and their respective countries and they operated on a modest scale once the licenses were granted. (14)

There was a slight shift in official attitudes during the boom of the late 1960s; a shift that was in part precipitated unwittingly by the influential mouthpiece of the domestic banks, the Australian Bankers' Association (ABA). The ABA maintained its opposition to foreign access, being particularly concerned at the potential loss of the lucrative foreign exchange dealings, which cross-subsidised the more unprofitable aspects of Australian banking such as serving branches in remote locations. The ABA also argued that the Australian banks already offered the full range of services provided by foreign banks and that, in any case, foreign banks could still invest in Australia through equity and loans. The self-interest of the ABA caused unease in the Banking Department of the Reserve Bank of Australia (RBA), which recognised some points in favor of foreign bank entry, such as increased capital inflow, heightened competition and innovative banking practices. In short, by this juncture it was recognised that restriction on foreign bank entry could not survive forever. (15) Nevertheless, for the next decade and a half the barriers to foreign bank entry remained firmly in place.

The Frustrations of Financial Fringe-dwelling: Citibank and the Federal Coalition Government, 1965-72

Against this background, in the later 1950s the FNCB moved once more to establish a foothold in Australia; a process that gave rise to a protracted period of shadowboxing with Australian officials and helped thrust to the fore the man who would lead FNCB's transformation into a global financial giant over the ensuing quarter century. In 1956 senior management appointed Walter Wriston, a 36-year-old vice-president, to take charge of the 'European Division', which actually included Europe, Africa, the Middle East, Australia and New Zealand. Wriston rose rapidly, becoming a senior vice-president in December 1958 and by November 1959 was head of the overseas division of the Bank. Wriston's ascent continued until he finally became FNCB chair in 1970, a position retained until his retirement in 1984. (16)

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Like many others in FNCB, Wriston was fascinated by Australia and quickly established contact with Australian officials concerning the entry of FNCB. He later noted the similarity of the US and Australia in terms of size and the impact of the frontier. (17) In April 1965 FNCB formally applied to the RBA to establish a representative office in Sydney. Approval was granted the following month on the condition that it engage in 'purely liaison activities' and not engage in any form of banking business. (18) The representative office played a key role in the continuation of FNCB requests to obtain a banking license in Australia, but these approaches gave rise to official suspicions about the role of the Sydney office, with the RBA finding it necessary on at least one occasion to meet with local managers to ensure that they were not engaging in any banking business. (19)

FNCB also entered into a joint venture in July 1966 with the Australian family-owned retailer Waltons to form FNCB-Waltons--which provided retail financing--with FNCB having a 50 per cent interest. FNCB-Waltons was one of FNCB's first significant overseas joint ventures. Waltons were concerned that the collapse in 1965 of another retailer, H.G. Palmer, which had relied upon debentures to fund its consumer credit operations, would undermine public confidence in any efforts by Waltons to raise capital through debentures. FNCB gave Waltons the credibility it needed to raise funds and, in return, Waltons gave FNCB a guaranteed fixed return on their capital. Wriston dispatched Tom Theobald, a 28-year-old assistant vice-president, to become managing director of FNCB-Waltons. Theobald expanded the activities of FNCB-Waltons to include equipment finance, leasing, mortgages, commercial loans and 'savings' debentures. In July 1968 FNCB-Waltons also pioneered negotiable certificates of deposit in the Australian unofficial money market, a further significant inroad against the domestic banks' hold over deposit-taking. (20)

FNCB ran into problems with the Coalition federal government over FNCB-Waltons. It was concerned that FNCB, through FNCB-Waltons, was attempting to establish itself on the 'banking fringe' as it could not obtain approval to obtain a commercial bank license. In July 1966, federal Treasurer, William McMahon, refused permission for FNCB to use the word 'bank' or any coined word such as 'Citibank' in the FNCB-Waltons name. Similarly, the Coalition federal government was concerned in June 1970 that FNCB-Waltons was contravening government requirements by issuing advertisements that referred to it as being a 'bank and family store'. There were also concerns about the propriety of the representative office issuing debenture prospectuses to the public for FNCB-Waltons. While the advertising could literally be interpreted as a breach of banking legislation, it was decided not to prosecute but, instead, to call in the FNCB representative to discuss these matters. (21) One RBA official noted that 'we cannot ignore the possibility that FNCB is attempting to "bend the rules" to the fullest possible extent'. (22)

FNCB also consolidated its presence in Australia through a number of other ventures. In 1969 it formed a merchant bank called Philips First City Brandts Limited (later PFCB Limited), with a Sydney stockbroker and English merchant bank, which provided a fee-based service on a small capital base. In July 1971, FNCB formed a company called CitiNational Holdings, which was a joint venture with National Mutual Life--a life insurance company--and Wallace H. Smith. CitiNational's chairman was J. Keith Campbell, chairman of Hooker Corporation. (A decade later, and in another role, Campbell would play significant part in preparing the way for foreign bank entry.) CitiNational absorbed the National Discount Corporation, which was previously a joint venture of National Mutual Life and Wallace H. Smith and operated as an official money market dealer. At the same time FNCB formed CitiNational Securities to operate in the unofficial money market. In August 1973 FNCB bought out the other partners in PFCB Limited and merged it into CitiNational Holdings to form a full product line merchant bank with branches in most of the major capital cities with assets of AU$2.6 million by 1 March 1974. (23) FNCB even linked up in May 1973 with the iconic Australian company, Arnotts Biscuits, in a 50-50 joint venture to reactivate a dormant permanent building society in Victoria and form the Arnotts First City Permanent Building Society. (24)

At this juncture, FNCB also tried two other backdoor means of entering Australian banking. One strategy involved commencing operations in Papua and New Guinea (PNG), which was an Australian-administered territory until 1975, and then to use this as a means of gaining a presence in Australian banking. In January 1970 R.W. Wheeler, a senior vice-president of FNCB, personally delivered to Leslie Bury, the federal Treasurer, an application for a banking license to operate two branches in PNG--in Lae and Port Moresby--to conduct trading and savings banks operations. This was the first attempt by an overseas bank to open branches in PNG. FNCB claimed that it could reduce the cost of administering the Territory and assist progress towards independence by promoting exports through its expertise in foreign exchange and its international leadership in the commodity trade. Other claimed advantages of the involvement included the training of local personnel and management development. A senior vice president of FNCB also met with an official of the Department of External Territories in Sydney in August 1970 to put the case for the license. However, the Australian government once again saw FNCB's application as an attempt to circumvent its policy of not authorising overseas branches in Australia, and concerns were raised about the sincerity of FNCB's desire to foster development in PNG. The RBA also questioned whether FNCB would have any material impact on the export performance of PNG, noting that the Australian banks were effectively handling the Territory's export needs. In April 1971, the Australian Government rejected the application. (25)

The second strategy was for FNCB to purchase one of the major domestic banks--the Australia and New Zealand Banking Group (ANZ), which was registered in London, but operated in Australia with a banking license. FNCB gave this strategy the code name of 'Project Abraham'. It involved co-operation between the London, New York and Sydney offices of FNCB. If FNCB bought ANZ then the RBA could not prevent it from operating in Australia. Despite an extensive investigation of the ANZ's operations in Australia, FNCB did not proceed with the purchase. (26)

By this time, though, FNCB was moving to establish a substantial ownership presence in the Australian finance market via another vehicle--the leading local hire purchase firm, IAC, which was now also a major player in the commercial property market. While Citibank tried a variety of means to gain permanent access to Australian markets, it was via IAC that this objective was ultimately attained. FNCB's involvement with IAC had many parallels with the ill-fated FNCB-Waltons venture. Indeed, as we shall see, in the depths of the property crisis of the mid-1970s all three entities resorted to issuing loans to each other in order to fend off collapse. Yet in relation to IAC at least, the outcome, as we shall see, was rather more propitious.

IAC was originally set up as a subsidiary of a US company of the same name in 1926, but was taken over by Australian interests in 1929. Originally a hire purchase company specialising in motor vehicle finance, the consolidation of a banking presence in Australian consumer finance after World War II both emboldened and impelled IAC management to seek returns further afield. With profits from hire purchase under increasing pressure, the leading finance companies set about reinventing themselves by diversifying quietly into property, particularly after a credit squeeze in 1961. IAC made its first move into property finance in 1959 when it acquired the Union Building Society, the third largest in Victoria, and one of the oldest surviving bodies of this type in that State. In 1961, it acquired a half stake in ill-fated property developer Chevron Queensland Ltd, and next year, with developer L.J. Hooker, it bought Melbourne real estate firm, T.M. Burke Pty Ltd. By 1967, with urban commercial construction booming ahead, IAC had emerged as a major player in property development finance. (27) Like FNCB-Waltons, the very different nature of risk exposure in property development was evidently lost on IAC management and ordinary IAC shareholders, many of whom welcomed the prospect of rich returns from real estate. (28)

IAC (Holdings) Ltd also lost its long-standing minority ownership link with the ANZ, established in 1957-58. When ANZ merged with the English, Scottish and Australian Bank (ES&A) in 1969, the newly merged organisation inherited Esanda, the finance company previously wholly-owned by the ES&A. The future of the ANZIAC (Holdings) relationship was one of three potential problems posed in the early merger discussions between the ANZ and the ES&A; the other two being the name of the new entity and the choice of chief executive. After lengthy discussions, the parties agreed that ANZ would divest its shares in IAC (Holdings) and that Esanda would be the new bank's finance company in Australia. ANZ's unwillingness to relinquish its association with IAC stemmed mainly from its reluctance to renege on what it perceived as its moral obligations to that company. Other options were considered, including running the two companies in tandem, but these were eventually rejected. In 1971, ANZ sold its stake in IAC to FNCB. So by 1971, FNCB held a 'consolidated interest' of 40 per cent in IAC with a 22.7 per cent interest in IAC through its wholly owned subsidiary, Nessus Investment Corporation and the 21.7 per cent in IAC (Holdings) Ltd purchased from ANZ. (29)

Citibank, the Whitlam Labor Government and the Rescue of IAC

IAC became fully immersed in the Australian property boom of the late 1960s, lending liberally to a new breed of property speculators. In 1968, the company made a series of major loans including AU$850,000 to Strata Development Corporation by way of first mortgage over a property in Macquarie Street Sydney. In the same year, having advanced AU$80,000 to the already heavily leveraged Bond Corporation by way of second mortgage over 38 acres just out of Perth, it lent a Bond subsidiary a further AU$1.9 million. (30) As Alan Bond later recalled:

   I had no trouble back then, in my mid-20s, getting millions in
   finance out of a single finance organization, IAC, with just a
   telephone call to the Chief Executive, Bill Edmonds (sic). (31)

By the following year, the property represented some 25 per cent of IAC's AU$405 million gross receivables. IAC had borrowed heavily to exploit the boom. For instance, IAC records reveal that the company had RBA approval for borrowings of US$5 million to 31 December 1972, and a further US$15 million to December 1973. When the crisis came, IAC was perilously over-exposed. By 1974, its debt exposure to Bond Corporation alone stood at some AU$35 million. When major development companies Mainline Corporation, Cambridge Credit Corporation and Home Units Australia 'went to the wall', IAC's exposure to these three alone was AU$7.6 million, AU$32.6 million and AU$25.8 million, respectively. (32)

One of IAC's most telling weaknesses was a lack of expertise in property investment. IAC management's business acumen lay in making margins out of vehicle hire purchase; when it came to turning a profit out of the financing of office high rise and other avenues of property development, they were largely innocents abroad. As one former FNCB manager recalled, the property deals were 'locally documented stuff and no-one really knew what was at risk'. (33) IAC found it was financing properties that were overvalued. In many cases, past interest payments had not been written off as an expense but, rather, had been capitalised. IAC directors believed the group had made adequate provision for losses occasioned by mortgage asset and other write-offs in 1974 of some AU$10.5 million. However, these write-offs were to continue over ensuing years at a dramatic rate. These cut into IAC profits--down by nearly half to AU$13 million in 1974, then deteriorating to reach a dramatic AU$32 million loss in June 1977.34 As Phillip Zweig, Wriston's biographer has observed:

   To finance speculative office construction and the purchase of
   Sydney real estate, IAC issued huge volumes of high-yielding
   debentures bought by Australians with lump-sum retirement payments.
   It also financed thousands of acres of raw land in the Australian
   outback. To reduce its exposure, IAC sold a big slug of what proved
   to be bum outback land to none other than FNCB-Waltons. A kind of
   loans triangle evolved among Citibank's representative office,
   Waltons and IAC, in which the three units were essentially
   'flogging loans to each other', as a former officer put it. The
   whole operation lacked the kind of financial controls that might
   have nipped the disaster in the bud. (35)

FNCB's support was crucial to the survival of IAC. However, FNCB was becoming increasingly concerned with the organisation's fragility in light of the battering it had taken from its property investments. Management of IAC was still primarily in Australian hands, despite FNCB's considerable minority holding. While FNCB's US managers oversaw their Australian counterparts, they were unable to do much more than 'wring their hands and worry about what was happening'. (36) By 1974, IAC lacked investor confidence and its liquidity had been sharply reduced. Its debenture renewals were at unprecedented low levels and its unsecured borrowings had for the most part been withdrawn at maturity. It had lost some AU$70 million from AU$120 million borrowings from unsecured creditors and, essentially, the only thing saving IAC from destruction was FNCB support, which by late 1974 had established US$70 million in total facilities for IAC. (37)

Certain legal and regulatory difficulties emerged from FNCB's continued support of IAC. The central problem for FNCB was that because of its minority shareholding, by continuing to provide support for IAC without having any control and supervision, it could be sued by its stockholders under US law if IAC suffered financial collapse. FNCB was also concerned about the vulnerability of its individual directors to a shareholders' suit should its actions be adjudged to have been commercially imprudent, given its minority holding. This concern was exacerbated, firstly, by IAC's exposure to potential losses of more than AU$80 million as the major creditor for the majority of the property company collapses, and, secondly, by a perception that IAC management had proved incapable of reversing the rapidly deteriorating situation. Faced with this scenario, FNCB made a formal application to RBA in late 1974 for an increase in its beneficial ownership in IAC to a controlling interest of 60 per cent. (38)

The difficulty here was that FNCB's desire to control a major Australian finance company ran counter to 'the firm opposition of the authorities to the entry of additional foreign banks to Australia'. (39) This opposition also remained strongly bipartisan. In 1973 the Whitlam government moved to further restrict foreign ownership in the financial sector except in cases of clear national economic benefit. Then in 1975 federal Labor created the Foreign Investment Advisory Committee (later the FIRB) to screen foreign direct investment. As such it was unsurprising that neither the RBA nor the government favored majority ownership 'in a major entity such as IAC passing into overseas hands'. (40) Under ordinary circumstances, the RBA would not have supported such a request. However, while policy during the long post-war boom had been driven by 'the almost obsessive anxiety about foreign bank entry', (41) the rapidly deteriorating economic climate engendered a degree of central bank pragmatism. IAC was by no means 'out of the woods' financially and was still quite vulnerable to collapse. The concern that 'a company as widely involved and respected as IAC' could not be allowed to languish, prompted the RBA to support FNCB's application to the federal Treasurer. Whilst the RBA thought the chance of FNCB withdrawing support if its application failed was 'probably not a real concern', it took the pragmatic view that there did 'not appear, therefore, any practical alternative to ensure viability for IAC other than through continued F.N.C.B. support'. (42)

FNCB support for IAC was seen as critical to shoring up the stability of the national system of credit by the Whitlam Labor government. IAC was the second largest finance company in Australia and its survival was vital to the continued viability of the credit system. (43) By late 1974, the Whitlam government was attempting to deal with an economic crisis of such proportion that it threatened not only the government's political future but also the economic future of the nation. Treasurer Frank Crean warned that 'the economy is continuing to perform close to its practical limits and that inflation is continuing unabated'. Crean went on to predict that inflation could be expected to rise sharply beyond the rate of 14 per cent for the June quarter. (44) A corporate collapse involving a firm of the size of IAC would have seriously exacerbated the crisis and further diminished public confidence in the economy. Described as the 'largest support operation ever undertaken in Australia', FNCB's actions were of such importance nationally that one commentator suggested that in its absence the task would have had to be borne by the Australian government 'which would have put great strains on the system in the present environment'. (45)

In December 1974, Treasurer Crean gave in-principle approval to FNCB increasing its ownership in IAC to 51 per cent; a decision that was confirmed in February 1975, although a further approval would be required for any proposal to take the shareholding beyond this level. (46) The US Federal Reserve Board sanctioned the arrangement in March 1975 but noted that its approval was not unanimous, with some Board members preferring FNCB to use funds 'to serve the credit needs of the domestic economy'. (47) The Australian press saw the Labor government's approval as a response to the support FNCB had provided to IAC 'in a time of investor uncertainty and depressed economic climate'. One Australian newspaper report observed that IAC was seen as a 'special case' by the government. (48)

Treasury's approval was seen by some as a reversal of the federal Labor government's 'buy back the farm' policy to reduce foreign ownership, but one that paved the way for restoration of investor confidence. FNBC had already taken over IAC management responsibilities, with the Bank's senior executive in Australia, Charles Kelly, now chairman and chief executive officer of IAC. The administrative function within IAC had been assumed by a FNCB vice president, and corporate planning and development were now managed by FNCB personnel. IAC could now move out of the consolidation phase and return to its lending and borrowing operations, but recovery was anything but guaranteed. Over the next two years, IAC was forced to engage in a succession of lending write-offs, which bit deeply into IAC profits. (49)

For our purposes, the key point is that FNCB's rescue of IAC by majority acquisition in the dying days of the Whitlam government gave it a considerable reservoir of political capital within the federal ALP; an intangible asset that would ultimately deliver a handsome return.

Citicorp, Merchant Banking and the Fraser Government, 1975-83

During the 1970s, partly in an effort to free itself from both US Federal Reserve and host country restrictions on foreign direct investment by US banks, Citibank underwent a series of strategic name changes. In 1974, the FNCB holding company, First National City Corporation, was rebadged as 'Citicorp'. In 1976 FNCB restyled itself as Citibank NA of New York. While the new nomenclature may not have been directed primarily at overcoming Australian entry barriers, it certainly accorded with the bank's antipodean ambition to become a bank in all but name. As we shall see, these plans were played out with some success in the early years of the Fraser Coalition government.

In July 1976, New York appointed Glen Moreno, one of the bank's most effective global executives, as Managing Director of IAC. Moreno, who had previously been responsible for overseeing the bank's operations in Germany and Austria, remained at the helm throughout the property crisis and beyond. Moreno quickly realised that in order to restructure the company and deal with the problems in the property portfolio, he had to accept significant write-offs on the loans--in essence to liquefy the portfolio. However, New York would not inject significant amounts of funds into IAC without it becoming a wholly-owned subsidiary. There were also concerns by many senior Citicorp managers in New York that any major restructuring of IAC would be risky, but Moreno had the key support of Robert Logan, his immediate superior in New York. Without Citicorp support, IAC, a major Australian company, would almost certainly collapse, with significant implications for Australia's financial system. But Citicorp's ostensible motive was to acquire full-ownership of an Australian financial institution that could be used for wider purposes, and Moreno and his colleagues understood that full ownership of IAC would require the Australian Government to waive restrictions on full foreign ownership of Australian listed entities. Indeed, Moreno and colleagues wasted little time in lobbying for approval to use the word 'bank' in Citicorp's Australian branding. (50)

Citicorp, through IAC, effectively controlled just on 60 per cent of issued capital in another troubled Australian short term money market operator, Bill Acceptance Corporation, and Citicorp's initial move, in January 1977, was to seek approval from the Australian authorities to bail out this firm by means of a full buyout by Citicorp. Moreno and colleagues argued the proposal would benefit the national interest in numerous ways, including introduction of 'specialized management techniques' supported by university-based management education programs, and accelerated introduction to Australia of 'the most sophisticated technology available to international banking financial transactions'. (51) When this proposal was rejected by the combined weight of Treasury, the Foreign Investment Review Board (FIRB), and the RBA, Citicorp turned its attention to the prospect of full acquisition of IAC itself, which remained in a parlous state particularly because of a continuing high level of interest payment default by real estate borrowers, and facing the prospect of outright collapse. Several months of tense negotiations ensured between Citicorp executives, on the one side, and the RBA, FIRB, Treasury and the Treasurer in the Fraser Coalition federal government, Phillip Lynch, on the other. The ICA takeover proposal received short shrift from RBA officials, with one remarking parenthetically that:

   There was some vague reference to a Citicorp 'pipe-dream' that it
   might be able to operate in Australia with a full banking licence
   but this was accepted as being completely impractical under present
   Australian political philosophies. (52)

However, Treasurer Lynch took the view IAC's continuing perilous situation warranted a relaxation of ownership restrictions, and approval was eventually secured on condition that Citicorp reduce its shareholding in IAC to no more than 75 per cent through disposal of at least 10 per cent to 'Australian residents' within six years and a further 15 per cent within a decade. (53) Had Citicorp not been willing to absorb considerable losses to purchase a stake in the Australian finance industry, it is unlikely any other player would have come to its assistance. (54)

In April 1977, Citicorp made a bid for outstanding shares in IAC through its subsidiary, Nessus. Despite some criticism in the local financial press that the price offered was too low, IAC's condition was such that without support it would go to the wall. (55) Shareholders accepted the bid and in August 1977 IAC become a wholly-owned subsidiary of Citicorp. Then, in September 1978, despite residual Treasury and RBA resistance to any change of trading name to indicate association with Citibank or its holding company, (56) the name IAC vanished from the corporate register, with IAC (Holdings) Limited and Industrial Acceptance Corporation Limited being rebranded, respectively, as Citicorp Australia Holdings Limited and Citicorp Australia Limited, with Moreno assuming the position of Chairman/Country Corporate Officer (CCO) of the latter. As a result of Citicorp's backing, Citicorp Australia Limited was able to retain properties, slow down development and see out the crisis, albeit under a different banner, with very different management culture, and with a new business brief in the field of the leasing of fleet vehicles. In 1978, Citicorp Australia Limited was Australia's third largest finance company, with over 133,000 finance customers, 146,000 insurance customers, 80,000 investors, and over 1,500 employees located in 68 branches around the nation. Following the IAC acquisition, Citicorp also sold its half-share in FNCB-Waltons to British bank, Barclays, while retaining the related entity FNCB Finance. FNCB Finance subsequently recovered but was subject to a 10 year full divestiture requirement and it was Citicorp Australia that now became the primary focus of Citi's business activities in Australia, with CitiNational remaining a significant secondary interest. (57)

For Citi, the timing was propitious, with an emerging resources boom generating vast underwriting opportunities in the mining and energy sectors. Under Moreno's successor, Richard (Dick) Jackson (1979-84), Citicorp Australia's Corporate Finance Division was split into Corporate--lending to major natural resources projects--and Asset Finance--vendor finance and equipment leasing, moving into mid-market corporate. The chief source of domestic funds for the financing these activities was public debenture raisings. In 1981, the firm became part of the banking syndicate financing offshore platforms and pipelines for the North West Shelf liquefied natural gas project. The next year, parent entity Citibank was appointed lead bank in raising finance for the Ok Tedi Mining venture in Papua New Guinea.

Meanwhile, Citicorp continued to lobby for an Australian banking license. Citicorp directly approached key politicians on both sides of federal politics for support. A key target at this juncture was John Howard, Fraser Government Treasurer, who, unlike Fraser himself, was a strong supporter of finance sector deregulation. Moreno also hired Andre Cohen from the RBA to develop the public policy case for opening up of Australia to foreign banks. Cohen was considered one of the best business economists in Australia, had strong links into the government and the business community, and was a member of the governing Liberal Party's Economic Committee. Cohen prepared the Citicorp submission to the Committee of Inquiry into the Australian Financial System, which was established by Treasurer Howard in January 1979 under the chairmanship of CitiNational's Keith Campbell to promote deregulation and despite opposition from Prime Minister Fraser himself. Campbell subsequently resigned as chairman of CitiNational owing to potential conflict with his new role as Committee chair. 58 Cohen's submission to the Campbell Inquiry criticised the lack of competition in the Australian financial system and called for the entry of selected foreign banks to improve efficiency. (59) While the ABA did not oppose the entry of foreign banks in its submission, it wanted no action concerning the entry of foreign banks into Australia until five years after any deregulation of the financial system. In September 1981, the Campbell Committee rejected the ABA call for a five-year moratorium on entry after deregulation and recommended an end to the limitations on foreign bank entry. The Committee noted that competition in domestic banking was insufficient to ensure maximum efficiency and benefits to consumers of banking services. It also attributed the high costs faced by consumers as stemming partly from the long-established regime of complex controls and suggested liberalisation of foreign investment policy as a means of stimulating competition. At the same time, the Committee cautioned that unrestricted entry would create a 'potential for instability' and recommended a limit to entry through the issuing of licenses. (60)

With the possibility of a banking licence now tantalisingly near, the jostling for favorable treatment escalated to unprecedented heights. A month after the Campbell report's release, Citicorp's Australian CCO, F.J. Catterson, wrote preemptively to federal Treasurer, John Howard, welcoming the major recommendations and formally advising him of the bank's 'desire to carry on [sic] domestic banking activities in Australia'. Howard's response was at best lukewarm. Treasury and RBA officials still harboured a degree of distrust towards Citi, particularly over its practice of using foreign currency letters of credit as a means of circumventing exchange controls and over its ever-widening activity in the domestic money market. In early 1982 the RBA prepared a detailed and critical review of Citi's Australian operations, particularly regarding the money market activities of FNCB Finance. Undeterred, in May 1982, Catterson and Ray Kathe, Citi's Tokyo-based Senior Corporate Officer for Asia and the Pacific, met with RBA officials to restate their case, noting Citi's aversion to taking minority equity interests in joint venture operations and the bank's wish 'to preserve a reputation of good corporate citizenship in Australia and elsewhere'. (61)

Citicorp's strategy of constructive engagement appeared to pay some initial dividends. In mid-1982 it received approval to open a representative office in Darwin. (62) But it was now also playing for far higher stakes and in October 1982 it launched a media offensive against the prospect that foreign bank entry might be tied to a local equity requirement. Visiting US executive, Tom Theobald, remarked that Citi's expectation of having its own wholly-owned branch structure was a 'make or break issue'. Theobald also hinted that a local equity requirement might rebound against Australian banks seeking to establish a presence in the US market. According to one business journalist, Theobald's 'bluntless' was a 'refreshing change from the usual platitudes from the legion of foreign bankers that have been trouping through the capital cities recently, virtually cap-in-hand'. (63) Citi's aggressive attitude seemed to pay immediate dividends. In November the FIRB approved its proposal to establish a new wholly-owned venture capital entity, Citicorp Capital Investors.

In early January 1983, the Liberal Treasurer, John Howard, finally announced that Australia would allow ten foreign banks to set up shop in Australia. (64) However, time and the economic tide were running against Howard. The Fraser Government s defeat at the polls in March 1983 thwarted his desire to be the architect of deregulation. It also meant that Citicorp's now had to redirect its lobbying towards the newly-elected federal Labor government and incoming Labor Treasurer, Paul Keating.

Federal Labor, Financial Deregulation and the Citicorp Banking License, 1983-86

By the early 1980s, the federal Labor Party had shifted its economic policy away from the post-war influence of Keynesian ideas of state intervention to embrace a selective form of free market economics. A Centre Left faction held the balance of power in the Federal Parliamentary Labor Party (FPLP) and consisted of middle-class professionals with few links with trade unions and was a strong supporter of the free market, modernisation and efficiency. The Labor Left in the FPLP was muted by an 'inner accord' to minimise factional conflict and focused on social welfare reforms. This coincided with the background of Commonwealth public servants in key economic portfolios, such as Treasury, who formed part of an 'economic rationalist deluge' that had flooded out from Australian universities ultimately to dominate Canberra. Keynesianism was seemingly discredited by the collapse of the post-war economic boom and neo-liberal economic rationalism provided an acceptable ideological alternative by which Labor might prove its credentials in economic management, which had been weakened by the apparent economic mismanagement of the Whitlam Labor Government that held power from 1972 to 1975. While the Hawke Government shared a desire for the modernisation of Australia with its predecessors, it relation to the reform of the monetary and banking systems, Federal Labor was now located squarely within the rubric of pre-Keynesian neo-classical economics. (65)

As this ideological shift gathered momentum, individual agency was also thrown into sharper relief, particularly the outlook and influence of Howard's successor, Paul Keating. Keating was born in the working-class suburb of Bankstown in Sydney, the son of a boilermaker who worked on the NSW Government Railways. He did not have a university education and was a clerk and trade union official before entering federal parliament in 1974. Politically he was highly astute, a forceful and unforgiving parliamentary combatant, and acutely aware of the negative impact of the Money Power on Labor governments. He was an admirer of Jack Lang and Rex Connor, whom he had succeeded as Minister for Minerals and Energy in the final days of the Whitlam Government. Keating, however, was also a strong advocate of deregulation and competition. (66) As Keating later remarked: 'The Labor government embraced rational economic solutions and market orientated policies because they were the best way of getting growth and the best way of ensuring the future of ordinary Australians'. (67) His desire to deregulate the Australian economy also arose from a belief that regulation protects privilege and that markets allowed people with merit to rise to the top. He had already come to the view following the release of the Campbell Report in 1981 that there was a case for the entry of foreign banks into Australia even though it was at odds with ALP policy. Keating wanted to 'ginger up the game' and, through foreign competition, force the local banks to improve their performance and contribution to economic growth and development. Exposing the domestic banks to foreign competition in their own market preserve emerged as his personal cause celebre during his initial years as Treasurer. With Prime Minister Hawke as a 'more-than-willing ally', 68 Keating was significantly better placed than his predecessor to secure Cabinet approval for deregulation.

However, Labor was initially reluctant to break with the idea of Australian equity in the banking sector. There was early conflict between the Labor government and Citibank over the issue of foreign ownership. Citibank was interested in setting up a fully-branded merchant bank in Australia, but Walter Wriston was unenthusiastic about any requirement for joint Australian ownership, given the unhappy experiences with FNCB-Waltons and IAC. (69) Citibank initially proposed on 30 June 1983 to purchase the merchant bank Grindlays Australia, a subsidiary of a British company, in which Citibank had a 49 per cent stake. However, in August 1983 the Labor Government advised Citicorp that it would only accept this if Citibank undertook to establish an effective partnership with an Australian interest within four years on a 50-50 basis. The Government argued that Citibank was replacing its minority shareholding interests with a 100 per cent foreign controlled interest. Citibank representatives, who were dissatisfied with the decision, persuaded Keating to reconsider his position and he attempted unsuccessfully to stop the distribution of a press release announcing the decision on 9 August. Keating, however, reaffirmed the government's decision on 16 August. Citibank immediately decided not to proceed with the purchase and to retain its interest in CitiNational, which it would have sold if it had purchased Grindlays Australia. In the UK, Citibank simultaneously restructured its interests so it became the dominant shareholder of Grindlays Holdings, which now owned all of Grindlays and its Australian subsidiary. While John Leggett, the head of Grindlays Australia, noted that the timing of the London deal was purely coincidental, the deal undercut the Labor government's stand against foreign ownership of merchant banks. Keating publicly denied this, noting that Citibank's ownership of Grindlays Bank had in effect fallen from 49 per cent to 48.6 per cent, but this ignored the fact that the remaining shareholdings of interests, such as those of Lloyds Bank, had become more diffuse and less able to challenge Citibank's influence. Further negotiations between Citibank and Keating led to a proposal whereby CitiNational would be broken up between insurer National Mutual T&G and Citibank. Citibank would be able use its share of CitiNational to set up its own merchant bank, but again only if it undertook to move to 50 per cent local equity. Citibank ultimately dissolved its partnership with National Mutual and assumed full ownership of CitiNational. (70)

In the wake of the conflict over Grindlays, which highlighted the limitations of foreign takeover laws where there was an exchange of foreign shareholdings, Labor continued to move towards a more liberal approach to foreign banks. The Hawke Government commissioned the Martin Review Group to review the Campbell Report in light of Labor's social and economic objectives. Vic Martin, then chairman of the Mutual Life and Citizens Assurance Company, was a former chair of the ABA. The Martin Review relied on the Campbell Report and did not hold an inquiry or solicit new submissions, although there were unsolicited submissions from the ABA and individual banks. In essence, the Martin Review was commissioned in order to allow Keating to give his own imprimatur to deregulation rather than that of Howard and Campbell. (71)

The Martin Review, which reported in February 1984, recommended a continued but gradual deregulation of the banking system. It supported the opening up of the Australian banking system to foreign banks in a limited fashion, which meant 4-6 new banks with a limited foreign ownership of up to 50 per cent. (72) The 'big four' local banks were generally enthusiastic towards the Martin Review. The Chief General Manager of Westpac Banking Corporation, Bob White, observed that he 'couldn't have written it better myself', whilst the managing Director of the Commonwealth Bank 'welcomed' the general thrust of the Review. It was clear that local banks gains from the broad deregulatory thrust of the Review far outweighed any concerns that they may have held over foreign bank entry. Citibank by contrast thought that the Martin Review's proposals for the entry of foreign banks imposed too high a price for most international banks. (73) Hans Angermueller, the US vice chairman and director of Citicorp in charge of worldwide external affairs, argued that 'having 100 per cent of the responsibility but receiving only 50 per cent of the benefits was not an effective trade-off as far as Citibank was concerned'. (74)

Having achieved one key element of his agenda of financial deregulation, namely the floating the Australian dollar, Keating now turned his energies to changing Labor policy in regard to foreign banks. With Treasury supportive of foreign bank entry, Keating lobbied the federal caucus from early 1984 by attending all the meetings of the cross-factional economic committee to put his point of view. Those Left caucus members hoping to dissuade Hawke and Keating from their planned course of action were left in no doubt as to the leadership's position:

   You know mate, you don't know what dopes ... you know the people
   who are running our banking system in Australia ... I mean they're
   absolute idiots. They're drones. They're people that have ... got
   all this lazy capital and ... these people need competition ...
   competition would get them off their arses. (75)

When he put the case for change to the NSW ALP Annual State Conference in June 1984 Keating was 'hissed by the Left and cheered by the Right', with the Left, the Australian Council of Trade Unions and the Australian Bank Employees Union arguing that foreign banks would have little interest in developing retail branch banking. At the July 1984 federal Labor Conference, Keating secured approval for changes to the Party platform supportive of foreign bank entry and further financial deregulation, contending that without foreign competition the four large domestic banks would dominate a deregulated banking sector and exploit households and individuals: 'It's time the privileged comfortable and dozy position of our banks is widened up by some real competition'. (76) Keating also argued that foreign entry would force the domestic banks to be more liberal in their lending to the struggling manufacturing sector, still heartland of blue collar unionism. In doing so, he made a thinly veiled reference to Citicorp:

   If it was not for the merchant banks, for 15 years gingering them
   up, we would still be back with quill pens and ledgers, up at the
   high tables making the folio entries. (77)

In a calculated appeal to a long tradition of Labor hostility to the local Money Power, Keating implied that foreign entry would also undermine the political power of the large domestic banks, who were traditional opponents of Labor Governments.

While the policy change initiative was notionally the work of the Party's National Policy Committee, the proposal itself owed much to Keating's influence and the outcome derived chiefly from behind-the-scenes lobbying by Keating, Hawke and their Right faction supporters, as well as a significant section of Centre-Left faction delegates, including cabinet ministers Dawkins, Button and Walsh. Leading members of the Party's Left faction, most notably cabinet ministers Brian Howe and Stewart West and Victorian MP Lindsay Tanner, did put dissenting views, but the Left had no one capable of matching Keating's oratory and its motion to delay further change to the Party's platform was defeated 41 for, 56 against. (78) According to Right faction enforcer, Graham Richardson, there was 'very little arm-twisting ... It was a non-event'. (79)

Lingering concerns in the Right and Centre-Left meant that the government was required to issue only a limited number of licences to foreign banks and to ensure a minimum of 50 per cent Australian ownership in the new banks. However, the door was now ajar and despite an appeal by the Australian Bank Employees Union, Keating refused to allow any union vetting of the foreign licenses. In September 1984, he announced the conditions for foreign bank entry, including a requirement for a minimum Australian equity of 50 per cent unless there were cases of 'significant benefit to Australia'. (80)

Citibank continued to lobby against the idea of Australian equity. Despite the problems over the merchant bank, in lobbying for a general banking license Citibank officers found Labor easier to deal with than Fraser. Citibank senior managers had ready access to the Treasurer Keating's office, which during the discussions over CitiNational, clearly upset Treasury officials. In dealing with Keating, Citibank representatives reinforced Wriston's view that Citibank would not enter Australia unless it had 100 per cent control of any banking license. Cohen's links with his former employer, the RBA, also continued to be valuable in the lobbying process. There was also recognition of the role that Citibank had played in preventing the collapse of IAC in the 1970s. (81) Later Keating visited New York and met Wriston informing him that he 'would see him good'. (82)

Citibank's lobbying paid off. On 27 February 1985 the Labor Government granted 16 licenses to foreign banks, including Citibank. However, Citibank was the only foreign licensee not required to take a local partner. The other US banks involved were all required to enter into partnership arrangements: Bank of America in partnership with retailer G.J. Coles, and Bankers Trust and Chase Manhattan in partnership with life insurance company, AMP. In November 1985 Keating also waived any outstanding requirements that Citibank subsidiaries were to be fully or partially divested to Australian investors. (83)

These special concessions drew criticism from Keating's opponents within the ALP Left. Peter Baldwin, the ALP member for the seat of Sydney, for example, expressed concerns on 7 May 1985 about the problems of controlling multinational banks. He specifically referred to Citibank, citing US legislative evidence that noted Citibank's efforts to evade banking regulations through 'offshore' operations in places such as Monaco and Panama. (84)

However, the Left's further protests were of little avail. Keating opened the first six Australian retail branches of Citibank on 11 December 1985 with a satellite hookup from Sydney. After the opening, Keating made it clear to Michael Cannon-Brookes, the then Citicorp Chairman and head of corporate banking, that he expected Citibank to give the existing Australian trading banks 'hell' in the market place. Keating noted that if Citibank needed any help, then they should give him a call. (85) With its banking license, Citibank began the process of consolidating it various operations, including its building society, CitiNational, and IAC under the Citibank banner. The Union Building Society in Melbourne, for example, would become the basis of a consumer bank network in that city. It already had the fourth largest finance company in Australia.

With Citibank's AU$1.5 billion of lending in Australia through its various affiliates, it estimated it was the seventh largest bank in the sector--after the four largest nationally operating banks and the two largest State banks. While a number of the overseas banks that received licenses struggled, by the end of the 1980s Citibank was performing relatively well in retail banking, partly because of the various beachheads it established prior to the granting of its Australian banking license. (86)

Conclusion

Drawing on Australian and American interview testimony, as well as on hitherto untapped archival material, this article has explored both the long-term institutional and economic backdrop to Citigroup's attainment of an Australian banking licence and the complex political and policy machinations that culminated in federal Labor favouring this pillar of US multinational capital with the only stand alone licence granted to a foreign bank. Such a development ran counter to decades of mutual distrust between the Australian labour movement, large foreign banks in general, and US multinational firms in particular. We argue that a rounded understanding of Citibank's success requires a close appreciation of its emergence as a significant player in non-bank financial services activity in Australian during the 1960s and '70s, an emergence that reflected both persistent lobbying and well-timed market intervention. By the early 1980s, Citibank had already done much to shed the burden of foreignness in the Australian context and the activities of its Australian subsidiaries made it an Australian merchant bank in all but name. What it still lacked was the ability to raise retail bank deposits. Equally, we argue that Labor's ultimate embrace of selected foreign banks, in particular Citibank, is best understood as a deliberate strategy of fighting fire with fire. We also present evidence to show that the outbreak of amity between Labor and Citibank was by no means assured and that the immediate backdrop involved a complex process of positioning, probing, stand-off and trade-off between Labor neo-liberals, Reserve Bank and Treasury officials and Citibank executives.

There is a triple irony here. Firstly, it was ultimately Labor that had railed against foreign-owned banks during its formative years but who later took the lead in opening the door to foreign banking. Secondly, while both Howard and Keating championed foreign bank entry, it was Keating who opened the door, with Hawke's full support, while Howard, who would ultimately become Keating's political nemesis, found his aspirations thwarted by Prime Ministerial opposition. Thirdly, like Chifley 40 years before, Keating arguably underestimated the resilience of the domestic banks, particularly in the lucrative retail banking domain where, in the decade following 1985, the newcomers, Citibank included, struggled to establish a profitable market share.

Endnotes

* The authors would like to thank the two anonymous referees for their constructive comments and suggestions. They also wish to acknowledge the financial support provided for this study by Citigroup Australia, and assistance with access to archival and oral sources provided by Nicholas Cowell (Citigroup) and the staff of the archives section of the Reserve Bank of Australia.

(1) . N. Dyrenfurth and M. Quartly, 'Fat Man v. The People': Labour Intellectuals and the Making of Oppositional Identities, 1890-1901', Labour History, no. 92, 2007, p. 41; P. Love, Labour and the Money Power: Australian Labour Populism 1890-1950, Melbourne University Press, Carlton, 1984, pp. 181-2.

(2.) R. Gollan, The Commonwealth Bank of Australia: Origins and Early History, Australian National University Press, Canberra, 1968, pp. 163-164; Love, Labour and the Money Power, pp. 183-185.

(3.) G. Patmore and D. Coates, 'Labour Parties and the State in Australia and the UK', Labour History, no. 88, 2005, pp. 125-6; Love, Labour and the Money Power, pp. 165-188.

(4.) Love, Labour and the Money Power, p. 190; C.B. Schedvin, In Reserve: Central Banking in Australia 1945-75, Allen & Unwin, St Leonards, 1992, pp.144-166, 203-247 & 271-294.

(5.) E. Carew, Paul Keating: Prime Minister, Allen and Unwin, Sydney, 1992, p. 39; G. Freudenberg, A Certain Grandeur: Gough Whitlam's Life in Politics, Penguin Viking, Melbourne, rev. edn, 2009, pp. 347-371.

(6.) Love, Labour and the Money Power, ch. 1; R. Markey, 'Populism and the Formation of a Labor Party in New South Wales, 1890-1900, Journal of Australian Studies, no. 21, 1987, pp. 38-48; R. Markey, The Making of the Labor Party in New South Wales, 1890-1900, New South Wales University Press, Kensington, 1988, pp. 38-48; G. Patmore, Australian Labour History, Longman Cheshire, Melbourne, 1991, p. 81.

(7.) B. Berzins, 'Douglas Credit and the A.L.P', Labour History, no. 17, 1969, pp. 148-160; Love, Labour and Money Power, ch. 7.

(8.) Patmore and Coates, 'Labour Parties and the State', pp. 125-6

(9.) H. Cleveland and T. F. Huertas, Citibank 1812-1970, Harvard University Press, Cambridge, 1985, pp. 76-82, 123; T.F. Huertas, 'The Rise of the Modern Business Enterprise: The Case of Citibank', Business and Economic History, 2nd series, vol. 14, 1985, pp. 143-150.

(10.) The National City Bank of New York and Branches, Statement of Condition, 1919-21, Citigroup Archives New York (CANY), RG4; Sydney Morning Herald, 6 February 1929, p. 19; The City Bank Club, August 1916, pp. 5-7, CANY; Memorandum. Re Position of Foreign Banks Opening in Australia, 27 July 1938. Memorandum, Opening of Branches of Foreign Banks in Australia. Memorandum. National City Bank of New York, 17 August 1939. Reserve Bank of Australia Archives (hereafter RBAA), S-a-1190.

(11.) Note, 'Approaches Received from Overseas and Local Sources Interested in Entering Australian Banking', RBAA, S-a-1190.

(12.) L.F. Giblin, The Growth of a Central Bank: The Development of the Commonwealth Bank of Australia 1924-1945, Melbourne University Press, Carlton, 1951, p. 56; Schedvin, In Reserve. pp. 392-395.

(13.) Schedvin, In Reserve, p. 395.

(14.) Ibid, p. 12.

(15.) Ibid., pp. 336-7.

(16.) P. Zweig, Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy, Crown, New York, 1995, pp. 84-94.

(17.) W. Wriston, 'The World Economy: Dr. Pangloss vs. Jeremiah', Speech given to given at the Institute of Directors on 25 October 1974, Sydney, Australia. http://dl.tufts.edu/view_text.jsp?urn=tufts: central:dca:UA069:UA069.005.DO.00287&chapter=c1--accessed 18 February 2008.

(18.) File, 'Foreign Banks--Opening of Branches in Australia. Section 10--First National City Bank of New York, 1959-1966', RBAA, S-a-1201.

(19.) Background Note. 'Visitor to Governor, Deputy Governor and Mr. Sanders 3 April 1972', Memorandum, 'First National City Bank, Australian Representative Office', Exchange Control Department', Exchange Control Department, 13 June 1974, RBAA. BIA 8-1; Letter from R.R. Greene to J.G. Phillips, 8 January 1969. RBAA BF-a-379; The Sydney Morning Herald, 15 February 1966, p. 13.

(20.) F. Clarke, G. Dean and K. Oliver, Corporate Collapse: Accounting, Regulatory and Ethical Failure, 2nd edn, Cambridge University Press, Melbourne, 2003, pp. 71-84; FNCB-Waltons Corporation Limited Newsletter, July 1969, p. 1; John Walton, a former chair of the board of directors of FNCB-Waltons, interview with the authors, Sydney, 19 March 2008; The Australian, 5 June 1968, p. 8; Zweig, Wriston, pp. 200-202.

(21.) Letter from William McMahon, Federal Treasurer, to Messrs Bartier, Perry and Purcell, July 1966. RBA, BF-a-378; Memorandum, 'FNCB-Walton's Corporation Ltd Advertising', Credit Policy, Banking Department, 16 June 1970. Background Notes. First City National Bank. Credit Policy, Banking Department, 22 June 1970. RBAA BF-a-379.

(22.) Note, FNCB-Waltons, 9 June 1970. RBAA BF-a-379.

(23.) John Erroll, "Phillips First City Brandts Limited--PFCB Limited--CitiNational Holdings Limited', 2006, 1-2. Unpublished manuscript in authors' possession.

(24.) Background Note. 'Visitor to Governor, Deputy Governor and Mr. Sanders 3 April 1972'. RBAA. BIA 8-1; National Times, 2 June 1975, pp. 47, 55.

(25.) File, 'First National City Bank--Proposed establishment of branches in Papua and New Guinea', National Archives of Australia, Series A 571, Item 1969/6398.

(26.) P. Murnane, former Citibank employee, interview with authors, Sydney, 23 November 2006.

(27.) H. Knowles, G. Patmore and J. Shields, 'From Hire Purchase to Property Development: the rise and demise of the Industrial Acceptance Corporation in Australia, 1926-77', Accounting, Business and Financial History, vol. 18, no. 3, 2008, p. 295.

(28.) P. Murnane, interview with authors, Sydney, 23 November 2006.

(29.) Knowles, Patmore and Shields, 'From Hire Purchase to Property Developments, pp. 295-6; D. Merrett, ANZ Bank: A History of Australia and New Zealand Banking Group Limited and its constituents, Allen & Unwin, Sydney, 1985, pp. 257-271.

(30.) Knowles, Patmore and Shields, 'From Hire Purchase to Property Developments, p. 296.

(31.) A. Bond, with R. Mundle, Bond, HarperCollins, Pymble, 2003, p. 28.

(32.) Knowles, Patmore and Shields, 'From Hire Purchase to Property Developments, pp. 296-297.

(33.) P. Murnane, former Citibank employee, interview with authors, Sydney, 23 November 2006.

(34.) T. Sykes, Two Centuries of Panic: A History of Corporate Collapse in Australia, Unwin Hyman, Sydney, 1988, p. 480.

(35.) Zweig, Wriston, p. 471.

(36.) Glen Moreno, former Citibank Country Head in Australia, interview with authors, 22 January 2007.

(37.) Knowles, Patmore and Shields, 'From Hire Purchase to Property Developments, p. 297.

(38.) Ibid.

(39.) Schedvin, In Reserve, p. 392.

(40.) Letter, Deputy Governor of the RBA to Secretary to the Treasury, Canberra, dated 19 November 1974, RBAA, BIA 8-1.

(41.) Schedvin, In Reserve, p. 402.

(42.) Draft Memorandum from H.M. Knight, Deputy Governor, RBA to The Secretary of the Treasury, Canberra, dated 18 November 1974, RBAA, BIA 8-1.

(43.) Robert Gottliebsen, 'US bank backs IAC and property market in Australia's biggest support operation', National Times, 11-16 November 1974, pp. 50-51.

(44.) Notes on Cabinet submission 918, 'The economic outlook' [A5931, CL155 Pt 1; f. 199], National Archives of Australia, http://www.naa.gov.au/Images/EconomyInflationJuly_tcm2-1477.pdf, accessed 11 August 2009.

(45.) Gottliebsen, 'US bank backs IAC and property markef, p. 50.

(46.) Telex (message No 1006) from Cranswick, Treasury to McKenna, RBA, 27 February 1975, RBAA, BIA 8-1.

(47.) International Banking Reporter, Part 2, vol. 2, no. 20, 24 March 1975, p. 2.

(48.) New York Times, 17 March 1975, p. 48.

(49.) Knowles, Patmore and Shields, 'From Hire Purchase to Property Developments, p. 298.

(50.) Minister of State for Post and Telecommunications, 'Consent under Section 66 to use the word bank', 8 September 1976, RBAA, BIA 8-1, File BF-80-433.

(51.) Letter from P.H. Austin, Chairman IAC and Citibank Vice-President, to J. Bellshaw, FIRB, 17 January 1977, RBAA, BIA 8-1, File BF-80-431.

(52.) Memo from G.R. Leighton, Exchange Control Department, RBA, 1 March 1977, RBAA, BIA 8-1, File BF-80-431.

(53.) Confidential memo from Treasury to FIRB, 30 March 1977, RBAA, BIA 8-1, File BF-80-431; Glen Moreno, former Citibank Country Head in Australia, interview with authors, Sydney, 22 January 2007, and personal communication with authors, 2 April 2008.

(54.) Sykes, Two Centuries of Panic, pp. 480-2.

(55.) Australian Financial Re-view, 5 April 1977, pp. 1 & 12.

(56.) Confidential memo, Banking and Finance Department, 31 May 1977, RBAA, BIA 8-1, File BF-80 432.

(57.) The Bulletin, 14 March 1978, pp. 78-89; Citicorp Australia Holdings Limited, Annual Report, 1978

(58.) Andre Cohen, former Citibank Australia senior economist/chief of staff, interview with authors, Sydney, 5 September 2006; Glen Moreno, interview with authors, Sydney, 22 January 2007.

(59.) Citibank, 'Submission to the Australian Financial System Inquiry', Sydney, 28 June 1979. Unpublished manuscript in authors' possession.

(60.) Committee of Inquiry into the Australian Financial System, Final Report, Australian Government Publishing Service, Canberra, 1981, pp. 448, 800-801; P. Kelly, The End of Certainty. The Story of the 1980s, Allen and Unwin, Sydney, 1992, pp. 34-53.

(61.) F.J. Catterson, Senior VP and CCO, Citigroup Australia, to Hon. John Howard, Treasurer, 19 November 1981; Treasurer Howard to Catterson, 16 December 1981; K.W. Stevens, Acting Manager, Exchange Control Department RBA, to Citicorp Australia Ltd, 22 December 1981; 'The Citicorp Group: A Review of Activities', RBA Banking and Finance Department, 3 February 1982, Memo re 'Visitor to the Chief Manager ... Ray Kathe, Senior Vice-President, Asia Pacific, Citibank N.A'. 24 May 1982; Memo re 'Citibank', Banking and Finance Department, 24 May 1982, RBAA BIA 8-1, File F185-00778.

(62.) Minister Assisting the Treasurer to R. Jackson, SVP Citibank NA, 16 July 1982, RBAA BIA 8-1, File F185-00778.

(63.) The Age, 12 October 1982, p. 29; also Sydney Morning Herald, 12 October 1982, pp 16-17; Australian Financial Review, 12 October 1982, p. 14, clippings in RBAA BIA 8-1, File F185-00778.

(64.) New York Times, 15 January 1983, p. 39.

(65.) Patmore and Coates, 'Labour Parties and the State', pp. 129-30; Kelly, The End of Certainty, pp. 1933; M. Pusey, Economic Rationalism in Canberra: A Nation-Building State Changes its Mind, Cambridge University Press, Cambridge, 1991.

(66.) J. Edwards, Keating: The Inside Story, Penguin, Ringwood, 1996, pp. 27-39, 58-63, 118-121; Paul Keating, former Australian Treasurer and Prime Minister. Interview with Nicholas Cowell, Sydney, 24 October 2005.

(67.) Paul Keating, 'The Labor Government 1983-1996', speech given at the University of New South Wales, 19 March 1999, p. 6, unpublished transcript.

(68.) House of Representatives, Australian Federal Parliament, Parliamentary Debates, 11 Sept 1984, p. 1059; Paul Keating, former Australian Treasurer and Prime Minister. Interview with Nicholas Cowell, Sydney, 24 October 2005; S. Martin, 'Labor and Financial Deregulation: the Hawke/ Keating Governments, Banking and New Labor', PhD thesis, University of Wollongong, 1999, pp. 200-1.

(69.) Zweig, Wriston, pp. 471-2.

(70.) Australian Financial Review, 10 August 1983, pp. 1-2; Fax, 'Options Proposed by Citibank', 14 Nov 1983. RBA BIA 8-1; John Erroll, former CitiNational corporate secretary, interview with authors, Sydney, 19 September 2006; Financial Times, 17 August 1983, p.7; Memo, P.J. Mair, Manager, Financial Corporations Division, 26 July 1983. RBA BIA 8-1; Press Releases, P.J. Keating, Treasurer, no. 72, 9 August 1983, no. 77, 29 August 1983. RBA BIA 8-1; Sydney Morning Herald, 18 Aug 1983, p. 15 ; The Age, 20 August 1983, pp. 17, 21; The Australian, 10 Aug 1983, p. 9, 17 August 1983, p. 12; The Times, 17 August 1983, p. 3, 5 June 1984, p. 3.

(71.) Kelly, The End of Certainty, pp.7-94; G.M McCarthy and D. Taylor, 'The Politics of the Float: Paul Keating and the Deregulation of the Australian Exchange Rate', Australian Journal of Politics and History, vol. 41, no. 2, 1995, pp. 219-239.

(72.) Carew, Paul Keating, p. 98; L. Pauley, Foreign Banks in Australia: The Politics of Deregulation, Australian Professional Publications, Sydney, 1987, pp. 67-71.

(73.) Australian Financial Review, 23 February 1984, pp. 1 & 8; Diary Note, 'Visitors to Deputy Governor Citibank, New York', Financial Institutions Department, 12 March 1984. RBA B1A 8-1; The Australian, 5 September 1983, p. 23

(74.) Diary Note, 'Visitors to Deputy Governor Citibank, New York', Financial Institutions Department, 12 March 1984. RBA B1A 8-1.

(75.) Martin, 'Labor and Financial Deregulation', p.203.

(76.) Ibid, p.204.

(77.) Ibid, p.211.

(78.) Ibid., pp. 203-6, 212; Minutes of ALP National Conference, 9 July 1984, ALP National Secretariat, MS4985, National Library of Australia (NLA), Box 461; Carew, Paul Keating, pp. 146-147; Edwards, Keating, pp. 263-4; Paul Keating, former Australian Treasurer and Prime Minister. Interview with Nicholas Cowell, Sydney, 24 October 2005; Pauly, Foreign Banks in Australia, p. 78.

(79.) Martin, 'Labor and Financial Deregulation', pp. 215.

(80.) Australian Financial Review, 12 November 1984, p. 2, 8 October 1984, p. 3; Martin, 'Labor and Financial Deregulation', pp. 207-209.

(81.) Australian Financial Review, 13 July 1984, p.15; Michael Cannon-Brookes, former Citibank Country Head in Australia, interview with authors, Sydney, 8 September 2006; Andre Cohen, former Citibank Australia senior economist/chief of staff, interview with authors, Sydney, 5 September 2006/ File note, 'Discussions with Treasury', 14 November 1983. RBA BIA 8-1; Richard Jackson, former Citibank country head, interview with authors, Sydney, 19 September 2006; Zweig, Wriston, pp. 471-2.

(82.) Paul Keating, former Australian Treasurer and Prime Minister. Interview with Nicholas Cowell, Sydney, 24 October 2005.

(83.) Letter from F.G.H. Pooley, Executive Member, Foreign Investment Review Board to M. CannonBrookes, 26 November 1985. RBA BIA 8-1; Michael Cannon-Brookes, former Citibank Country Head in Australia, interview with authors, Sydney, 8 September 2006.

(84.) House of Representatives, Australian Federal Parliament, Parliamentary Debates, 17 May 1985, p. 1763.

(85.) Michael Cannon-Brookes, former Citibank Country Head in Australia, interview with authors, Sydney, 8 September 2006.

(86.) Australian Financial Review, 28 February 1985, p. 1, 12 December 1985, p. 45; Financial Times, 25 September 1985, p. 6, 14 June 1989, p. 8.

Harry Knowles, Greg Patmore and John Shields *

John Shields is an Associate Professor in the Discipline of Work and Organisational Studies, Faculty of Economics and Business, at the University of Sydney. As well as undertaking research and teaching in the fields of human resource management and corporate governance, John researches Australian labour and business history and is co-editor of the Biographical Register of the Australian Labour Movement, 1788-1975.

<john.shields@sydney.edu.au>

Harry Knowles is a lecturer in the Discipline of Work and Organisational Studies, Faculty of Economics and Business, at the University of Sydney with research interests in labour and business history.

<harry.knowles@sydney.edu.au>

Greg Patmore is editor of Labour History. He is Pro Dean of the Faculty of Economics and Business, The University of Sydney, and director of the Business of Labour History Group. His current research projects include a history of employee participation in Australia, Canada, Germany, the UK and the US in the period from 1914 to 1939, consumer co-operatives and a history of Citibank in Australia.

<greg.patmore@sydney.edu.au>