Look back in anger
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.