Commonwealth Bank Shareholders hit hard

Ross Greenwood speaks to Commonwealth Bank Chief Executive Ian Narev about its half-yearly profit which has suffered a massive write-down.

Commonwealth Bank Shareholders (ASX:CBA) hit hard

Ross Greenwood:  I’ll be speaking with the Commonwealth boss Chief Executive rather Commonwealth bank chief executive the boss Ian Narev. This is after the bank today came out with its half-yearly profit. Now the half-yearly profit curiously enough has been affected by a messy write-down $375 million provision for what the bank thinks it might be hit with in terms of penalties from the Federal Court action that has been instituted by AUSTRAC. Now bear in mind that AUSTRAC alleges 53,000 breaches of anti-money loaning provisions where the bank throughout their tight network all through its own surveillance, pretty much-allowed drug syndicates, money launderers even those people financing terrorism to use the Commonwealth Bank almost on impinged. Billions of dollars went through the bank. Well in this regard the bank has made a provision of $375 million not the only issue for the Commonwealth bank, of course, it’s going to face a royal commission which will begin next week the first hearings of that royal commission will take place then and $200 million has been set aside. Now notwithstanding all of that, the bank announced a half-yearly profit of $4.73 million. It’s down by 1.9% this is the cash profit but had they not had those write-downs as provisions the bank’s profit would have been up by 5.8% to $5.11 million. I spoke with Ian Narev a little earlier. We’ll speak with him very very shortly and play you that.

Ian Narev thanks for your time. $375 million set aside as a provision for the AUSTRAC action. Another $200 million set aside for potential costs in regards to inquiries Royal Commissions and the lot. Is this the bank admitting that it’s culpable for mistakes to shareholders to customers over the past five years?

Interview with: Ian Narev, CEO, Commonwealth Bank

Ian Narev: Well Ross a fiscal thanks having me. Overall we’ve said this before. There are areas in which we have not met the standards we should have. Standards others expect of us and standards actually that we expect of ourselves. There has been reputation well consequence of that which we take very seriously and we can see in these results that there are financial consequences as well. Now the bank successes mean that it’s still doing the right thing for customers and shareholders to spot these things but we take these things very seriously and there are signs that we’ve got work to do to be as good a bank as we need to be.

Ross Greenwood:  That total amount of money $575 million which is largely if you like management’s mistakes errors that have been made inside the bank and its management. What does that money come from?

Ian Narev:  Well Ross obviously any money that comes out of the bank is the bank’s money and it’s the money of the shareholders of Commonwealth Bank and the nature of investing in a bank as we management make good decisions when the environments good you benefit when the environment is not as good or management decisions aren’t quite as good you don’t do as well and overall for the Commonwealth Bank shareholder over just about every period they’ve done extremely well but in this particular area we should have done better and we take accountability and responsibility for that.

Ross Greenwood:  You take accountability and responsibility but the bank’s shareholders lose $575 million at this stage. The question is whether the management would have taken $575 million worth of accountability for the mistakes that they made?

Ian Narev:  Well Ross just as when the bank does extremely well you wouldn’t expect management to take all the upside when the bank makes mistakes the management doesn’t take all the downside. The reality is if you go back over the last 10 years over the last six years of any time period you want the performance of the Commonwealth Bank for its shareholder, the dividends that we’ve paid the share price performance for the 800,000 families who own the bank directly and the millions more who own them through the s super we’ve done extremely well for the shareholders and work very hard for them but we will always try and do better and we will always take accountability where we should have done better.

Ross Greenwood:  You are leaving the bank in April, do you believe that you personally have taken your share of accountability for that $575 million?

Ian Narev:  No matter what happens whether it’s on your watch not on your watch Ross when you are the chief executive of an institution like the Commonwealth Bank and I’ve been very privileged to be in that role for six and a half years you stand accountable and you take accountability for it and as we sit here today and you can see it in these results there are areas we needed to do better and at the same time you can see 10 years of a consistent strategy continue to generate industry leading customer satisfaction, industry leading returns for shareholders, jobs for Australians, high levels of innovation. We’ve got to say I as a chief executive and my team and all of us feel there are mistakes that we’ve made and feel that there are things that have gone extremely well and that’s part and parcel of life in management.

Ross Greenwood:  Personally as chief executive as you leave this role do you believe that your reputation your personal reputation is enhanced or diminished through your time as chief executive of this bank?

Ian Narev:  Ross this is a bank which has been around for more than 100 years and it will be around for 100 years more. Chief executives come and go. What I can say in my time at the Commonwealth Bank is that I felt privileged to lead it. I’ve given it my best. I’m extremely proud of the Commonwealth bank’s people. I’m leaving it in extremely good hands I think Matt Comyn will be an outstanding chief executive and overcoming years the bank will continue to do well. They will have forgotten who the previous chief executive was and we’ll all move on.

Ross Greenwood:  We will. Of course, life moves on that’s just the nature of the beast, but from your personal point of view, you are a human being. You have been here through this period, you’ve had a lot thrown at you, role commissions, inquiries from the prudential regulator, you’ve now got AUSTRAC chasing the bank. Now provision of $575 million because of those mistakes. From a personal point of view how does it affect you?

Ian Narev:  These are not the parts of the job that you enjoy Ross. When there are things that haven’t gone as well as you’d hoped they would with you personally or your team responsible or not, they are the hard parts of the job but that’s what you sign up for. When you’re leading an institution with the proud history of the Commonwealth Bank and the responsibility of the Commonwealth Bank you need to accept that. You need to really try and give it your best and you need to accept that you’ll have successes and areas where you’re not doing as well. All of that’s part and parcel of the privilege of leading this phenomenally great institution.

Ross Greenwood:  Is it a disappointment?

Ian Narev:  There is always disappointment. I can’t imagine if ever leaving this job I’m thinking if I had my time again I would have done everything the same way. You learn things, you realize you’ve done decisions in a different way and that’s part and parcel not just of management but of life and there are differently things looking back I would do in a different way and likewise when I look at the underlying performance of the Commonwealth Bank today the strength of the institution the high levels of customer satisfaction the performance for the mums and dads shareholders, the performance for customers, the leading technology, there’s a lot to feel good about as well.

Ross Greenwood:  Okay then you’ve got a situation where the Productivity Commission has now come down with a report showing effectively that the banks the big four banks have been a protected species, that they should be significantly changed to allow outside shareholders more ability to have competition in this bank industry that maybe even the four pillars policy which protects the banks from takeover has acted against the customers best interests. What’s your feeling towards that report from the Productivity Commission?

Ian Narev:  There are all sorts of different views emerging about the industry. We go back for financial saves inquiry you’ve been observing this industry for years. We’ve had the FSI we’ve had I think three or four appearances in front of the House of Representatives, we’ve got a royal commission we’ve got the ICCC. We’ve got the Productivity Commission, everyone’s giving us their view on what could be done to make the industry better and we’ve got a responsibility to listen very openly but also to make sure that we do what we feel is most important the long-term interests of all the stakeholders of the Commonwealth Bank and that’s what we try and do and I’m sure that’s what the bank will continue to do.

Ross Greenwood:  Okay the four pillars policy specifically it’s always been one of those things that the big four banks should not be able to merge. What’s your own feeling if Australia is to have a stronger banking industry more competitive banking industry should the big four banks be allowed to merge?

Ian Narev:  Well I can’t think Ross of a single decision that I’ve been involved in nearly seven years as the CEO over 10 years with the bank was there anything to do with a four pillars policy and what that tells you is we’ve given it absolutely no thought certainly for the decade I’ve been around the [crosstalk]

Ross Greenwood:  That’s because it was never up for change but now potentially it’s being put back on the agenda as to whether it should change.

Ian Narev:  I’d need to go through the detail of what the recommendation is but I can’t imagine why in the environment we are in today what difference a change that policy would make in anything we do in running the Commonwealth Bank and if it would make that difference I’m not sure why it’s near the top of the list of any policy discussions but again if this comes up as a topic of interest we’ll engage openly and we’ll be prepared to provide our views.

Ross Greenwood:  Okay. Take me through the market jitters over the past few days, again this has come from the United States but these things have a habit of going global. Shares here investors here are getting nervous. Is this a reminder again that we are not necessarily out of the woods economically and that’s maybe one reason as to why the banks need to have the extra solvency, why they need to really remain as strong and robust as we possibly can make them.

Ian Narev:  Well it is a sign you should never take the strength of the banking system for granted and you know that. You’ve only got to go back 10 years and we forget very quickly. We take the strength and stability of Australia’s bank for granted but economies can move very quickly. Now that said, we are not of the view that the volatility we’ve seen in markets recently is a fundamental shock or a fundamental change. What we do believe is that we coming off a period where interest rate policy, Central bank policies around the world. were unprecedented levels of low-interest rates and expansionist policies. As central banks come back to a more normal lot of savings you are going to see some volatility in market reactions and we need to be prepared for that.We as a bank think for the long-term so we don’t get too unsettled by momentary jitters and hopefully that is how most of our customers and our shareholders feel as well.

Ross Greenwood:  Royal Commission starts next week, who will be fronting that Royal Commission for the common wealth bank ?.

Ian Narev:  We don’t know yet and it’s going to be up to the commission. Our commitment is to be as open, transparent and as cooperative as we can possibly be .

Ross Greenwood:  Ian Narev as always we appreciate your time.

Ian Narev:  Thanks very much Ross.


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