Commonwealth Bank to investors: We still don’t get it

THE Commonwealth Bank was dead wrong in what it did just before Christmas 2008 and its retiring CFO, David Craig, remained dead wrong in his revisiting of the event, writes Terry McCrann.

Commonwealth Bank chief financial officer David Craig. Picture: Hollie Adams

THE Commonwealth Bank was dead wrong in what it did just before Christmas 2008 and its retiring CFO, David Craig, remained dead wrong in his revisiting of the event in an interview yesterday.

Now Craig has been an exceptionally effective CFO of Australia’s biggest bank for more than a decade — moving into the job just in time to be well and truly tested in the white heat of the Global Financial Crisis.

At what was arguably the GFC’s high — or low — point, the CBA moved to raise $2 billion in a placement to institutional investors.

In his interview with the AFR Craig described the “capital-raising debacle” as the low-point of his 11 years as CFO.

The placement was originally intended to be done — and indeed was done — by Merrill Lynch. But CBA suddenly pulled it from that broker and had it completely redone by UBS. It also cut the price at which the shares were issued by $1.

Why? Because CBA had told Merrills to tell potential investors that the bank was going to increase its loan impairment expenses; Merrills didn’t and the instos went ballistic when they belatedly saw the CBA announcement that it had raised the money and that, by the way, those expenses were up.

Now I like Craig and value what he has to say on substantive matters — I would commend his interview to anyone interested in banking, investment and what’s happening in the global financial sector.

But you have to say the lack of self-awareness he demonstrated in his comments about this incident was breathtaking. Neither he nor the bank more broadly “gets it”. They didn’t get it in 2008 and they self-evidently still don’t get it in 2017.

Let me spell it out simply again, as I did in 2008. It is the CBA’s responsibility to inform its own shareholders and the market more broadly and to inform them in the necessary timely manner. Like, before asking anyone to subscribe for shares.

It is not a responsibility that the CBA — or indeed any company — can “subcontract out”. And what happened in 2008 shows precisely why that’s the case: when the “subcontractor” failed to perform.

Yet the AFR had Craig referring yesterday to “the broker’s lack of disclosure about CBA’s loan book”.

In nine years it doesn’t seem to have occurred to Craig that just maybe the CBA could have been the one making the necessary disclosures about its loan book. All it had to do was file an announcement at the ASX.

Instead it made those disclosures exclusively to Merrills; and it was expecting Merrills to make them to a wide group of instos, most of which would have already been CBA shareholders but some of which might not have been.

We have Craig saying: “We provided the stock exchange release to ­Merrill … unfortunately they didn’t actually give the stock exchange release to ­investors.”

Knock, Knock David: what about instead the CBA giving the stock exchange release to, well, the stock exchange?

Despite Craig attempting to paint the disclosure as not material, he also — rather unfortunately — was quoted as stating: “at that time (my comment: at the most explosive point of the GFC) loan impairment expenses were a critical focus for all investors.”

So what was it David: merely a formality — that even so cost the bank $1 a share — or critical?

Somewhat belatedly — two days after all this was happening, back in 2008 — CBA did make a fuller public statement of its loan impairment position.

You can have a debate over its materiality; but I would argue that in the white heat of the GFC any up-to-date such disclosure is material: bad, disastrous and even good.

And at its most basic, information shared with some investors — some of whom might not have been shareholders — should always be shared with all shareholders and indeed the wider market.

This is why this is so important, going way beyond a debate with a retiring CFO. It goes to much broader issues not just of disclosure but market practice, then and even more importantly, continuing now.

What CBA set out to do in December 2008 was utterly conventional and unremarkable to both its prime regulator, the ASX, and the overall corporate cop ASIC.

It should not have been then. It should not be now.

THE MERGER THAT GREW BIGGER

THE competition tsar’s latest move in the saga of the Tabcorp-Tatts merger is both weird and hugely important.

The weird part is that at the start the ACCC indicated it didn’t really have much of a problem with the merger.

Yet it then not only aggressively opposed it when the merger partners bypassed it and went straight to the Competition Tribunal, it’s now doing what it’s never done before — appealing the decision!

You’d have to think that this had to be one mother-of-all badass destroyers of competition. In fact, that’s not necessarily so. Although the ACCC won’t say, it could still think the merger wouldn’t be that anti-competitive.

It’s much more about the way the tribunal framed its decision, and how that would force the ACCC to take a much softer approach in weighing the pluses and minuses in assessing all other authorisation applications, mostly outside the high-profile big-dollar merger deals.

The appeal decision will set a very big precedent.

Originally published as Commonwealth Bank to investors: We still don’t get it