Look back in anger

Townsville Bulletin - - NEWS - TERRY McCRANN

THE Com­mon­wealth Bank was dead wrong in what it did just be­fore Christ­mas 2008 and its re­tir­ing chief fi­nan­cial of­fi­cer 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 just in time to be well and truly 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 in­ter­view with the AFR Craig de­scribed the “cap­i­tal- rais­ing de­ba­cle” as the low point of his 11 years as CFO.

The place­ment was orig­i­nally in­tended to be done – and in­deed was done – by Mer­rill Lynch. But CBA sud­denly pulled it from that bro­ker and had it com­pletely re­done by UBS. It also cut the price at which the shares were is­sued by $ 1.

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

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

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

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

Some­what be­lat­edly – two days af­ter all this was hap­pen­ing, back in 2008 – CBA did make a fuller public state­ment of its loan im­pair­ment po­si­tion.

You can de­bate its ma­te­ri­al­ity, but I would ar­gue that in the white heat of 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 – some of whom might not have been share­hold­ers – should al­ways be shared with all share­hold­ers and in­deed the wider mar­ket.

LOW POINT: Out­go­ing Com­mon­wealth Bank CFO David Craig re­flected on the ‘ cap­i­tal rais­ing de­ba­cle’ of 2008.

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