A few weeks ago the lending book of Matt Comyn’s Commonwealth Bank quietly ticked over the $1 trillion mark. This puts it nearly $200bn ahead of the next biggest bank, Westpac, and shows just how deeply leveraged to the Australian economy CBA is.
When Team Australia does well, CBA does well.
Even with the prospect of interest rates rising from August, Comyn and his well-oiled CBA machine are banking on a strong Australia.
CBA’s first-half profit shows a bank brimming with confidence, but one that has learnt to drop the swagger of the last decade.
It talks of spending up to find new ways for customers to do business and it is showering shareholders with billions of dollars in cash. It is returning $8bn in the form of share buybacks, on Wednesday adding $2bn to last year’s still to be completed $6bn program.
Its first half dividend has increased 17 per cent from a year ago and represents another $3bn payout.
This comes on the back of a 23 per cent increase in December half profit to $4.74bn.
In short, any bank that has real worries about the outlook doesn’t splash the cash like this.
There will be some bumps ahead and Comyn’s message to homeowners is one of perspective – don’t fear the interest rate rises when they eventually come.
“Interest rates are so low that even if the cash rate increases by 100 basis points over the next year and a half the repayment amount will be relatively modest versus what we’ve seen in other cycles,” the chief executive says.
Business will also feel the pinch of inflation mostly around wages, although this has been a long time coming for workers.
The bank has offered its own staff a 3.5 per cent increase under its new enterprise agreement which is running above the national average.
After the most extraordinary economic shock of a generation, Comyn sees Australia at a turning point, with businesses and their staff now more productive after being forced to reinvent themselves in the face of repeated Covid lockdowns or changed spending patterns. He is also likely to encourage a golden period of risk-taking.
“You can characterise the last couple of years with enormous resilience and adaptation,” Comyn says in an interview.
“Clearly there’s a lot of financial support. But we’ve certainly seen across business a complete reconfiguration and changes to their operating model.
“In many cases, there’s been a much greater shift towards digitisation and really an acceleration of some of the things that were already underway.”
Across CBA’s customer base some businesses have already overhauled their supply chain in the face of intense pressure. Others have been rethinking their target market in light of shifting demand patterns.
“There’s been a very challenging period for many businesses, particularly small businesses that have been especially hard hit by the pandemic. And so clearly with the economic outlook, it should be a much better period for them,” he says.
“And hopefully some of the investments and the reforms that they’ve taken within their business will support a much better set of operating conditions.”
CBA is pushing ahead with its own reinvention as it makes even larger bets on technology.
While Australia’s other major banks are hacking away at their cost bases to keep ahead of a squeeze on profit margins, CBA is playing a big game on technology – mostly around payments. Some of its moves are defensive and others are designed to attack new markets.
At current rates Comyn is spending about $2bn a year on technology and other investments. For the past few years the majority of this has been earmarked for risk and compliance after its costly run in with financial crimes regulator Austrac – a crisis point that forced CBA to reform itself. However, this spending mix is about to change.
Tech arms race
In the December half 39 per cent of the investment spending was on productivity and growth initiatives, compared to 41 per cent on “risk and compliance” projects.
The rate of productivity and growth spending has been increasing sharply and at current rates will now make up the bulk of spending. This covers digital, technology and banking platforms as well as development on payments.
Banks can’t afford to stay still, particularly with the tech giants around – mostly Apple and Google as well as Jack Dorsey’s Block, the payments business that recently acquired Afterpay. This week Apple’s push into payments accelerated with the tech major announcing plans to roll out Tap to Pay on iPhone, which allows small businesses to use mobile phones as a terminal for contactless payments. CBA is also in a global arms race. Last month Wall Street’s biggest bank JP Morgan said it was planning to spend $US12bn ($16.8bn) on technology.
CBA’s massive tech spend of previous years is paying dividends which means that CBA is growing at 1.2 times the broader market when it comes to home lending, writing more than $40bn worth of new loans through the December half. Business lending meanwhile increased 1.7 times the growth of an already heated market.
Comyn says the strategy behind technology is about convenience, including helping customers track their spending. It’s designed to simplify payments and shopping and also make the experience of buying a new home easier.
Last August CBA launched an interest-free buy now, pay later card which already has 150,000 accounts. Elsewhere, its newly-formed venture capital arm x15ventures took a stake in tech play Doshi which allows online orders for restaurants and cafes.
Some of the bets are well over the horizon, including a minority stake in H20.ai which is developing an artificial intelligence platform. Here CBA sees opportunities for sales leads for customers and being able to respond to questions. It also has small bets on the Gemini crypto exchange as well as the Different property management platform.
However, the recent crash in BNPL stocks means CBA had to move on its minority holding in fast-growing Swedish payments player Klarna, writing down $220m from its stake. CBA’s book value of $2.48bn on the privately held Klarna infers the business is worth $49.6bn. And the bank is significantly ahead on its initial $420m outlay.
Comyn says banking of tomorrow won’t just be marked on pricing, it is about broadening and deepening relationships with customers across the board.
“We think it’s really important that we can differentiate our offering … we will continue to watch it closely,” Comyn says. Few of CBA’s Australia’s rivals have the bandwidth to talk up their tech bets, with many still on a repair mission from their own missteps.
That’s why CBA shares are again pushing $100 each and trading at a hefty premium to peers.
johnstone@theaustralian.com.au
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