Newsletter – August 11 2017

The Week that was…

“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.”

Allegations and profits dominated this week.

The massive profit of $9.88 billion by the Commonwealth Bank has been over-shadowed by allegations from money-tracking regulator Austrac that the bank failed to properly monitor cash transactions by criminal syndicates.

That’s because the Commonwealth Bank is one of the most powerful institutions in Australia.

It has 51,800 employees; more than 800,000 shareholders and 16.6 million customers – basically, this one bank has a huge impact on the lives of Australians.

Now, last financial year, the bank alone paid $3.95 billion in tax – around 1 percent of the total tax collected by the Government last year…and the Government do not want to loose that tax.

I would even say that every Australia – through their super fund, their direct income or even Government-paid community facilities – is affected by the Commonwealth Bank.

The allegations of money laundering and financing of terrorism place enormous pressure on the board and on CEO Ian Narev.

Now, there is good reason. Having systems that turn a blind eye to money laundering has plagued major banks around the world for the past five years.

Some are even suggesting an inside job…how can the criminals know so quickly about the flaw in the system, but not the banks?

We all know large corporations have been hit with massive fines, especially in the US – HSBC, Standard Chartered.

Even in Australia, Tabcorp paid a huge $45 million earlier this year to settle similar, but vastly smaller, allegations.

The bank has had its fair share of issues in recent years.

Financial  planning and insurance scandals rocked the boat and caused quite a bit of reputational damage. But the Commonwealth Bank was overcoming this. But now, it seems this latest allegation might be a step too far.

With record low interest rates and house prices soaring in the major capital cities, the Commonwealth Bank is – and should be – in a sweet position right now. And its profit shows that is is.

But it still relies on the goodwill of their customers, staff and shareholders. If this falls, the reputation and value of the bank is slowly chipped away.

Senator Jacqui Lambie kissed goodbye her Commonwealth Bank accounts on Wednesday, declaring it should be known as the “Criminal Bank of Australia”

Not the type of publicity the bank wants at this time, I’m sure.

The shareholders are also key. There is little doubt a possible multi-billion fine that could hurt the Commonwealth is being discounted by shareholders. Its shares have fallen since the Austrac allegations were revealed … but only a little. That suggests shareholders are not expecting financial calamity as a result of these allegations.

But do not take that for complete satisfaction with the bank.

Last year – at the Commonwealth’s annual meeting – more than 50 percent of shareholders voted against its executive remuneration report. Rejecting that report sent a big message to the board and management. Shareholders were already not happy – especially with the executive salaries.

If there was a second strike on the remuneration report this year, the whole board would legally have to spill … and put themselves up for re-nomination. It is never a good look for a company.

That’s the reason why new Chairman Catherine Livingstone moved quickly to stop bonus payments for senior executives. And why she cut the board’s pay by 20 percent.

Under such trying conditions, the Commonwealth does not need the embarrassment of a board-spill to add to its pile of issues right now.

Energy was another hot topic as parliament resumed after its six week break. Energy bosses were summoned to Canberra on Wednesday for a meeting, and giant AGL posted its soaring results.

But one hot topic of discussion that brought many callers was their apparent commitment to lower energy prices.

Most states in Australia were hit with a 20 percent hike in the energy bills in recent months, and with some first quarter bills coming through…the price hike is, for a lack of a better word, insane.

One listener to Money News, Terrance, sent me an email. He’s an 80 year old pensioner and his power bill is $756.26. How can a pensioner, an 80 year old pensioner, be expected to pay $756.26 a quarter for his energy bill – this is crazy!

So, all energy bosses were called to Canberra for a meeting on how to lower the prices.

I spoke to Paul Geason, managing director of Momentum Energy, who basically told me that they will guarantee to lower energy prices but didn’t say by how much or how.

The Treasurer, Scott Morrison, told me the same thing. He basically called on the energy companies to stop taking advantage of their customers.

“Its not taking care of your customer, its taking them for granted” (For the full interview, listen here)

Now, we have a fundamental problem in this country if we cannot afford energy.

And with the constant closure of coal-fired power stations, we are just making our energy grid more volatile and less likely to survive the summer.

The coal-fired Liddell station in the Hunter Valley is set to close in 2022…well, shouldn’t we be exploiting these last few remaining stations while we can before they close?

Why haven’t we?

This will certainly be interesting to watch.

In other news, NAB’s monthly business survey revealed business conditions has risen to pre-2008 levels. As a result, business confidence is up.

Quite good timing for this, I must say, as this week marks the 10 year anniversary of the beginning of the global financial crisis.

9News –

The Commonwealth Bank has released a staggering $9.88 billion in profits this financial year…but has the recent allegations had an effect? – Watch here

Money News –

Energy giant AGL posted record profits this week, but this is nothing compared to what they are expecting next year – Listen Here

Work. Life. Money –

The race to colonise Mars is on and I speak to one of the astronauts who might get a one-way ticket to the planet – Listen here from Sunday

List of all the posts for this week

10-08-2017 9News: AGL’s soaring profit

10-08-2017 AGL profits $802 million amid higher energy prices

10-08-2017 Bill Shorten would be in jail under new laws

10-08-2017 Car industry on notice

10-08-2017 Money Minute – August 10 2017 CommBank Not Fixed Yet

10-08-2017 Newsletter – August 11 2017

10-08-2017 The collapse of the housing industry is on the way

09-08-2017 9News: CBA Boss speaks out

09-08-2017 CBA CEO- Should he stay or Should he go?

09-08-2017 Commonwealth Bank’s intelligent deposit machines scandal overshadows $9.88b profit

09-08-2017 Money Minute – August 9 2017 CommBank Slashes Bonuses

09-08-2017 Power bill relief on the way

09-08-2017 Treasurer Scott Morrison: Its not looking after your customer, its taking them for granted

09-08-2017 Vocational Education on the rise  despite crackdown

08-08-2017 9News: Your shopping bill is in your hands

08-08-2017 Business confidence at a nine year high

08-08-2017 EnergyAustralia profit drops despite rising prices

08-08-2017 Money Minute – August 8 2017 CommBank’s Legal Fight

08-08-2017 Serious gaps in Australia s cyber defences

08-08-2017 The Force Awakens – Andrew Twiggy Forrest

08-08-2017 Will CBA scandal have a long term impact?

07-08-2017 9News: CBA in Damage Control

07-08-2017 9News: Petrol prices fall to 10 month lows…but not for all

07-08-2017 ATO systems aren t bound by commercial service standards

07-08-2017 Budget pressure to be passed to the next generation

07-08-2017 Commonwealth Bank money laundering allegation

07-08-2017 Divorce and superannuation: Who gets what?

07-08-2017 How much super should you have at your age?

07-08-2017 Money Minute – August 7 2017 CommBank Defence

07-08-2017 Newsletter – August 4 2017

07-08-2017 Pressure intensifies for royal commission following CBA laundering allegations

07-08-2017 Simple guide to super

07-08-2017 Vale Betty Cuthbert

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