Beau­ti­ful num­bers

Townsville Bulletin - - NEWS -

Townsville COM­MON­WEALTH Bank CEO Ian Narev un­veiled what can gen­uinely be called a “beau­ti­ful set of num­bers” yes­ter­day.

Far more im­por­tantly, they weren’t just “beau­ti­ful” in that ba­sic – $ 10 bil­lion – profit sense, but beau­ti­ful in the much broader con­text of the ab­so­lutely in­dis­pens­able role that the CBA, and in­deed all the banks, play not just in un­der­writ­ing the econ­omy but in­deed in help­ing sus­tain civil so­ci­ety more broadly.

In that very broad sense, if you dig right into the fig­ures, CBA got it es­sen­tially “right”: broadly bal­anc­ing the need to make an ap­pro­pri­ate, in­deed an in­dis­putably “good” profit; how it got to make that profit; while also dis­charg­ing its com­mu­nity obli­ga­tions.

All this re­mained true, notwith­stand­ing the Austrac so- called “money laun­der­ing” de­ba­cle of the last week.

And my state­ment was not con­tra­dicted by ei­ther the group mea culpa of the unique across- the- board elim­i­na­tion of the short- term bonuses of the se­nior ex­ec­u­tive man­age­ment team – and in­deed a sim­i­lar and also unique cut to the fees of the board it­self.

It will also not be con­tra­dicted by the fur­ther cuts to the long- term bonuses of more spe­cific ex­ec­u­tives, in­clud­ing the CEO, which we will see in the for­mal re­mu­ner­a­tion re­port next week. In stark, stun­ning and quite frankly de­press­ing con­trast, the com­ment on the profit rushed out by the Greens man­aged to both cap­ture the ab­so­lute va­pid­ity and plain stu­pid­ity of the “big bank, big profit” bank- bash­ing, and to an­nounce how the Greens would – and I am not speak­ing hy­per­bol­i­cally but lit­er­ally – de­stroy Aus­tralia, if they ever got their hands on the po­lit­i­cal levers of power.

Lit­er­ally? They would turn Aus­tralia into Venezuela. Not hy­per­bol­i­cally? Ten years ago, three Greens politi­cians ac­tu­ally went on the record of want­ing to do ex­actly that.

They joined with a col­lec­tion of ( not use­ful but en­tirely use­less) id­iots to in­vite Venezue­lan dic­ta­tor Hugo Chavez to come to Aus­tralia to ad­vise our lead­ers on “how to run a coun­try and econ­omy”.

The Greens state­ment claimed that the $ 10 bil­lion profit was “em­blem­atic of what is wrong with the Aus­tralian econ­omy”. It went on to blame – not quite sure which: CBA ex­ec­u­tives? Their salaries? The CBA as an in­sti­tu­tion? Banks gen­er­ally? Our en­tire so­ci­ety? Maybe, just the 21st cen­tury? – for the fact of low wage in­creases and the cost of hous­ing.

Clearly, if the Greens had their way they’d turn Aus­tralian banks into Venezue­lan ones. And apart from that gen­eral “am­bi­tion”, they haven’t the slight­est clue of the com­plex­ity of a mod­ern fi­nan­cial in­sti­tu­tion in gen­eral and the spe­cific way that the CBA crafts its op­er­a­tions, its func­tion­al­ity and vi­a­bil­ity, and that $ 10 bil­lion profit.

The core “beau­ti­ful” num­bers in the de­tail was the way CBA man­aged to turn a 5.6 per cent growth in its ac­tual busi­ness vol­umes ( loans) into “only” a 3.9 per cent growth in net in­ter­est in­come and then that in turn into a 4.8 per cent in­crease in op­er­at­ing per­for­mance.

The first of those moves – the 5.6 per cent growth in busi­ness but only a 3.9 per cent rise in net in­ter­est in­come – di­rectly re­buts the broad claims of the “bank- bash­ers” and the spe­cific claims of id­iots like ASIC chief Greg Med­craft of goug­ing with the so­called “out- of- cy­cle” rate rises on home loans.

Yes, CBA marginally in­creased lend­ing rates, but that was al­most com­pletely off­set by in­creases in rates it paid on de­posit and other forms of fund­ing. That’s more gen­er­ally de­scribed as “run­ning a busi­ness” – de­cid­ing how you best com­pete in the a mar­ket.

The bot­tom line was that CBA in­creased its loans but ac­tu­ally cut its net in­ter­est mar­gin across the busi­ness – the dif­fer­ence be­tween what it charges bor­row­ers and what it pays de­pos­i­tors.

So, how did it nev­er­the­less in­crease its bot­tom- line profit at a faster ( but not ob­scene) pace? By cut­ting its costs; and by cut­ting those costs not by sack­ing staff or slash­ing their salaries, but by cost- cut­ting tech­nol­ogy – where CBA is right out in front of its peers; and by sim­i­lar ‘ smart’ use of old bricks- and- mor­tar bank­ing as­sets.

Yes, the $ 10 bil­lion sounds like a huge profit. But the CBA is a very big – in­deed, glob­ally sig­nif­i­cant – bank. The profit is barely 1c on each dol­lar of loans and other as­sets it has on its books. The profit is also not just in­come to share­hold­ers but the crit­i­cal el­e­ment in the con­tin­u­ing sound­ness of the bank as the pre­mier fi­nan­cial in­sti­tu­tion in the Aus­tralian econ­omy. Weaken the CBA and you threaten the en­tire econ­omy.

So the Austrac mess is not just a brand­ing is­sue for one com­pany, but of much greater and broader sig­nif­i­cance. CBA chair­man Cather­ine Liv­ing­stone and her board made it crys­tal clear with their ac­tions that they un­der­stood this.


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