Profit and pay cuts
Townsville IT’S now over to chairman Catherine Livingstone and her fellow Commonwealth Bank directors. They have to make a very big ‘ statement’ and they have to make it tomorrow on what would normally be CEO Ian Narev’s big – as in, $ 10 billion or so – day.
The baker’s dozen who comprise the top executive management team must all lose their short- term bonuses for 2016- 17. Maybe even the board should collectively take a haircut.
Those executives with direct line responsibility for the Austrac disaster – presumably the head of the Australian bank, of retail and of technology, and arguably also Narev, at whose desk the proverbial buck stops ( and on which the 53,000 ‘ missing’ Austrac notices figuratively land) – must cop a greater penalty.
It would probably be ‘ useful’ were Narev to volunteer his own penalty, rather than as he said on Sunday, that it was up to the board.
It is neither appropriate nor necessary for him to depart. In my judgment, neither the current issue nor the compendium of issues that have surfaced – some unfairly – around the CBA, constitute a CEOsacking offence ( or even the more polite: we agree to part ways).
Narev’s actual tenure is a more complex issue, perhaps best resolved as my colleague John Durie wrote in The Australian yesterday by a ‘ long goodbye’ stretching out a year or so.
Further, a very, very, well- intentioned word to the wise: all this — the pay cuts — has to be announced, and in full, tomorrow and not postponed either with “you’ll have to wait for the remuneration report” or the “the detail will be in the rem report.”
It’s not actually me providing the advice, although I am transmitting — and endorsing — it. These are the observations of a former senior banker, who needless to say has been less than impressed with either the specific CBA Austrac mess or CBA’s — complacent/ arrogant — corporate behaviour more broadly in recent years.
As this former banker added: there’s a general feeling, running right across senior levels of the industry, that if we end up getting a royal commission into banking ( still, in my view, unnecessary and inappropriate), it would be all- but entirely due to CBA.
Now you might reasonably conclude that a former competitor is not the most objective source for commentary on CBA. But it’s hard to avoid the observation that CBA has tended to prove its own most devastating critic, by its failure to be both contrite and proactive.
Its initial response to the punishing Austrac statement was completely inadequate — more or less, just that we will in time file a defence and we will abide by our disclosure obligations.
That was like the weather bureau saying — a category five hurricane has just hit the coast, but rest assured, that some time in the next week or so we’ll give you an update, and we’ll keep releasing our regular temperature forecasts.
It looked like the message had got through when Narev went public Sunday with the admission of serious mistakes and an endorsement of Austrac’s role and its specific actions.
Yesterday’s statement was a big step backward, with its attempted claim that 53,000 odd transgressions were really only one.
Apart from the fact that was precisely the wrong projection into the public arena at this time — and a rather clumsy attempt to ‘ inform the market’ that CBA was most unlikely to end up being fined billions — it also served to precisely highlight CBA’s core failing.
Yesterday I quoted Narev as claiming the reporting failure had nothing to do with the $ 20,000 limit on individual cash deposits to its so- called ‘ intelligent’ ATMs ( or ITMs). In fact it had everything to do with it.
You have to understand that each of the 53,000 breaches were of a cash deposit in excess of $ 10,000 which had to be reported to Austrac and was not because of the system failure.
So, very simply, if CBA had limited individual deposits, as the other three majors did and do, to a sum of less than $ 10,000 ( by physically limiting the number of $ 100 notes a deposit could take to 99 or less), there quite simply could not have been a deposit in excess of $ 10,000.
So there quite simply could never have been such a deposit that it failed to report. They wouldn’t have existed.
In one sense the bigger issue is the ‘ smaller issues’ separate to this spectacular failure: they are all the specific examples of clearly suspicious or actual money laundering behaviour that CBA was too tardy in acting on or failed entirely.
All this said, two things need to be understood in the context of the media hysteria.
One, there is zero evidence of deliberate malpractice by CBA or by individual staff.
This is a very different — essentially stuff- up plus arrogance — situation to the spectacular bankinvolved money- laundering we have seen internationally.
Secondly, the actual money laundering identified is relatively minor, set against the tens of billions that pass through CBA’s accounts each year. That’s not an excuse, just context.
All this is even more reason for chairman and board to lead and lead aggressively.