CBA to investors: we still don’t get it

THE Commonwealth Bank was dead wrong in what it did just before Christmas 2008 and its retiring CFO, David Craig, remained dead wrong in his revisiting of the event in an interview yesterday.

Now Craig has been an exceptionally effective CFO of Australia’s biggest bank for more than a decade – moving into the job in time to be tested in the white heat of the global financial crisis.

At what was arguably the GFC’s high – or low – point, the CBA moved to raise $2 billion in a placement to institutional investors.

In his AFR interview Craig described the “capital-raising debacle” as the low point of his 11 years as CFO.

The placement was done by Merrill Lynch. But CBA pulled it and had it redone by UBS. It also cut the price the shares were issued at by $1.

Why? Because CBA had told Merrills to tell investors the bank was going to increase its loan impairment expenses; Merrills didn’t and instos went ballistic when they belatedly saw the CBA announcement that it had raised the money and by the way, those expenses were up.

Now I like Craig and value what he has to say on substantive matters – I would commend his interview to anyone interested in banking, investment and what’s happening in the sector.

But you have to say the lack of self-awareness he demonstrated in comments about this incident was breathtaking. Neither he nor the bank more broadly “gets it”. They didn’t get it in 2008 and they don’t get it in 2017.

Let me spell it out simply again, as I did in 2008. It is the CBA’s responsibility to inform its own shareholders and the market more broadly and to inform them in the necessary timely manner. Like, before asking anyone to subscribe for shares.

It is not a responsibility that the CBA – or any company – can “subcontract out”. And 2008 shows precisely why that’s the case: when the “subcontractor” failed to perform.

Yet the AFR had Craig referring yesterday to “the broker’s lack of disclosure about CBA’s loan book”.

In nine years it doesn’t seem to have occurred to Craig that just maybe the CBA could have been the one making the necessary disclosures about its loan book. All it had to do was file an announcement at the ASX.

Instead it made those disclosures exclusively to Merrills; and it was expecting Merrills to make them to a wide group of instos. Most would have already been CBA shareholders but some might not have been.

Craig said: “We provided the stock exchange release to Merrill ... unfortunately they didn’t actually give the stock exchange release to investors.”

What about instead the CBA giving the stock exchange release to, well, ASX?

Despite Craig attempting to paint the disclosure as not material, he was quoted: “at that time loan impairment expenses were a critical focus for all investors.”

So what was it: merely a formality – that cost the bank $1 a share – or critical?

Two days after all this, CBA made a fuller public statement on its impairment.

I would argue that in the GFC any up-to-date such disclosure is material: bad, disastrous and even good.

And at its most basic, information shared with some investors should always be shared with the market.

This is why this is so important. It goes to issues not just of disclosure but market practice.

What CBA set out to do in December 2008 was unremarkable to its prime regulator the ASX and the overall corporate cop ASIC.

It should not have been then. It should not be now.