Profit and pay cuts

Townsville Bulletin - - NEWS -

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.


Cather­ine Liv­ing­stone

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