CommBank Not Fixed Yet
I know I’ve banged on about the Commonwealth bank this week … but it is such an important story to so many people … not the least its 800,000 shareholders.
So far those shareholders have been calm in the face of the allegations from AUSTRAC … that the bank failed to report more than 53,000 transactions between 2012 and 2015.
It’s been revealed that some of those transactions were undertaken by drug syndicates and money launderers. To say, though, that the commonwealth was complicit – is a step too far.
Because of its systems … it was simply asleep at the wheel. And its boss – Ian Narev admits … not every problem has been fixed.
And that – culturally – is not a good thing for Australia’s largest bank – Australia’s largest company.
But those 800,000 shareholders – who are being calm – have something else to be concerned about. Something that’s sneaking up on them … and all big bank shareholders.
It’s this: from the bank presentation yesterday. Something over-looked.
It’s the return on the shareholders’ equity … or money.
To explain … over time all companies build up equity – or capital. It comes from money raised from shareholders; profits retained after dividends are paid and profits from selling parts of the business.
In other words – after the debts have been paid off … what’s left … is the equity.
Well return on equity is the key to discovering successful businesses. And the Commonwealth is – has been – highly successful.
But because government now requires banks to hold more capital – to make them safer … to back their mortgages … it’s harder to get a stronger return on capital.
You can see in the past year its come down from the 18s to 16. And remember this is a time when the bank’s producing record profits.
Now 16’s not bad. Anything over 15 is pretty smart. The problem is the trend.
That means – depending on conditions – banks shares are likely to be a more volatile in the future than they are today.
It’s not an arm-chair ride.
Dollar overnight 78.8 US cents, Dow Jones down 36.