Terry McCrann: Commonwealth Bank’s ‘beautiful’ $10 billion profit

COMMONWEALTH Bank CEO Ian Narev unveiled what can genuinely be called a ‘beautiful set of numbers’ on Wednesday, writes Terry McCrann.

Commonwealth Bank chief Ian Narev. Picture: AFP

COMMONWEALTH Bank CEO Ian Narev unveiled what can genuinely be called a ‘beautiful set of numbers’ on Wednesday.

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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.

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Ten years ago, three Greens politicians joined with a collection of idiots to invite Venezuelan dictator Hugo Chavez to come to Australia to advise our leaders on “how to run a country and economy”.

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 specific claims of idiots like ASIC chief Greg Medcraft of gouging with the so-called ‘out-of-cycle’ rate rises on home loans.

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 so-called ‘out-of-cycle’ rate rises on home loans.

Macca’s perspective.

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.

NAB chief executive Andrew Thorburn. Picture: Stuart McEvoy

ANZ BREAKS WIND IN ‘THE CLUB’

OH dear, the ANZ — inadvertently? — rubbed the CBA’s collective nose in its Austrac mess on Wednesday.

Responding to a story in the AFR suggesting ANZ could be scooped up in the money laundering allegations, ANZ rushed out a statement headed: “ANZ confirms compliance with anti-money laundering regulation.”

In the context of the last week, that was devastating — and pointed — enough. But the real punch to CBA’s gut came in one sentence: “ANZ completed a thorough risk assessment prior to the introduction of smart ATMs in 2013 which saw deposits limited to $5000.”

The headline 53,000 Austrac breaches by CBA relates to deposits of more than $10,000. CBA allowed deposits up to $20,000. If CBA had done what ANZ did, there would have been zero such breaches.

Austrac is also alleging that CBA did not do the “thorough risk assessment.” Oh dear. That’s why it’s ‘on to next week’s rem report’ and further stops after that.