CBA’s Ian Narev urges return to reforming spirit of 1991

CBA’s chief has urged policymakers to tackle difficult reform as the bank celebrates 25 years since its float.

CBA chief Ian Narev and foundation shareholder Arthur Pardey at the bank’s commemoration. Picture: Chris Pavlich.

Commonwealth Bank chief Ian Narev has urged policymakers to boldly tackle difficult reform that fosters long-term growth, citing Paul Keating’s 1991 float of CBA as an example of an unpopular decision that delivered in spades.

Marking 25 years since CBA listed on the stock exchange, Mr Narev said the anniversary had sharpened his resolve to have the “courage and conviction to think for the long term and I think the same message today applies for all stakeholders including ­politicians”.

“We look at decisions made around that time in 1991 and bear in mind that this was not an easy time for banking ... to take a government-owned bank and put it in the public’s hands was a courageous decision,” he said.

“There was a lot of opposition to it, there were investors who didn’t think it was the right thing and we have a government of the time saying: ‘I’m not going to be concerned about what the opinion polls are saying, I’m going to do what’s right economically for the country’. And looking back on that after 25 years we’d have to say that was a very good decision and that’s the standard I think we should all be holding ourselves to.”

His comments come as the government seeks to pass budget savings with a slim lower house majority and through a hostile Senate — a concern that recently prompted Standard & Poor’s to warn that the sovereign — and also the big four banks’ — credit ratings could be downgraded.

As weaker economic growth and low interest rates weigh on bank returns, Mr Narev last month said “affirmative signs of good constructive policymaking” were needed and leaders had to work together on policies for the “good of the country”.

He has previously singled out the need to prioritise tax and infrastructure reform. Progress was made on Tuesday as the government and opposition agreed to a $6 billion-plus budget savings package.

While state governments are having mixed success selling the merits of privatisations to improve budgets and invest in infrastructure, Mr Narev said Mr Keating rightly realised in the early 1990s that CBA “was best in the hands of the Australian public versus ... the Australian government”.

According to CBA, founding shareholders who paid $5.40 a share in the bank’s float for the minimum $2160 stock parcel and reinvested dividends now sit on an investment worth almost $148,000, including franking credits. Recently the stock has slid 11.4 per cent, from $78.41 before CBA’s annual results last month to $69.50 yesterday, down 1 per cent to a three-year low.

Investors have turned on the stock following the bank’s weakest profit and dividend growth since the global financial crisis as all operating divisions posted ­either flat or falling profits in the second half to June 30.

Along with growing question marks about CBA’s returns, ­margins and capital position, big investors have also been reweighting their portfolios, driving relative outperformance in ANZ shares in recent months.

A headwind for all banks this year has been Labor’s campaign for a royal commission into their conduct in the wake of several scandals. Mr Narev on Tuesday reiterated there was no need for a royal commission, claiming the bank acknowledged when mistakes were made, fixed them and compensated victims. He said CBA would respect any new ­dispute forums, such as a mooted special banking tribunal for victims to seek justice, despite believing that also was unnecessary.

Fresh from meeting investors in London and Europe, Mr Narev said Australia’s relative attractiveness amid global volatility should not be taken for granted.

“Investors still have an appetite for Australia but one thing that’s absolutely uniform among all debt and equity providers we see overseas is the fact they see the strength of the banking system as having been absolutely critical to Australia’s economic success through the global financial crisis,” he said.

“And they’re very concerned to make sure that nothing happens that will put the strength of that banking system in any jeopardy. In addition to the overall strength of the banks … political attitude towards the banks is clearly something that people take into account.”

Bell Potter analyst T.S. Lim last week cut his price forecast for CBA by 7 per cent to $76.50, preferring Macquarie, ANZ and Suncorp. “All the banks are generally in good shape, coping well with the usual regulatory and operational constraints and negativity from needless political interference,” Mr Lim said.

“(But) the outlook remains subdued for the larger mortgage banks (like CBA) in our view.”