Commonwealth Bank

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Commonwealth Bank of Australia
Public
Traded as ASX: CBA
Industry Banking, financial services
Founded
  • 22 December 1911; 113 years ago (1911-12-22) (as a government bank)
  • 1991; 33 years ago (1991) (as a public company)
Headquarters Sydney, Australia
Area served
 Worldwide
Key people
 David J Turner, Chairman
Ian Narev, CEO and Managing Director
Products
List
Revenue Increase A$23.668 billion (2015)[1]
Profit Increase A$9.063 billion (2015)[1]
Total assets Increase A$873.446 billion (2015)[1]
Number of employees
 45,948 (2015)[1]
Divisions
List
  • Retail Banking Services
    Business and Private Banking
    Institutional Banking and Markets
    Wealth Management
    International Financial Services.[1]
Subsidiaries
List
Website www.commbank.com.au

The Commonwealth Bank of Australia is an Australian multinational bank with businesses across New Zealand, Fiji, Asia, USA and the United Kingdom. Commonly referred to as the Commonwealth Bank (or CBA or Commbank),[2] it provides a variety of financial services including retail, business and institutional banking, funds management, superannuation, insurance, investment and broking services. The Commonwealth Bank is the largest Australian listed company on the Australian Securities Exchange as of August 2015 with brands including Bankwest, Colonial First State Investments Limited, ASB Bank (New Zealand), Commonwealth Securities Limited (CommSec) and Commonwealth Insurance Limited (CommInsure).[3] Commonwealth Bank is also the largest bank in the Southern Hemisphere.[4]

Founded in 1911 by the Australian government, the Commonwealth Bank is one of the "big four" Australian banks, with National Australia Bank (NAB), ANZ and Westpac. The bank listed on the Australian Stock Exchange in 1991 and the government fully privatised it in 1996.

History

Foundation and early history (1911–1941)

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See also: Reserve Bank of Australia
The State Savings Bank building in Martin Place, Sydney, built in 1928 and used until 2012 by the Commonwealth Bank of Australia

The Commonwealth Bank of Australia was founded by the Commonwealth Bank Act on 22 December 1911, introduced by the Andrew Fisher Labor Government, which favoured bank nationalisation. In a rare move for the time, the bank was to have both savings and general bank business. The bank was also the first bank in Australia to receive a Federal Government guarantee. The bank's earliest and most strenuous proponent was the flamboyant American-Australian Labor politician, King O'Malley, and its first Governor was Sir Denison Miller.

The bank opened its first branch in Melbourne on 15 July 1912.[5] In an agreement with Australia Post that exists to this day, the bank also traded through post office agencies. In 1912, it merged with the state savings bank in Tasmania, and by 1913 it had branches in all six states.

In 1916, the bank moved its head office to Sydney. It also followed the Australian army into New Guinea, where it opened a branch in Rabaul and agencies elsewhere.

In 1920, the bank took over from the Department of the Treasury the responsibility for the issue of Australian bank notes, the beginning of its acquisition of central bank powers.[6]

In 1920, the Commonwealth Bank merged with the state savings bank in Queensland.

In 1931, the government transferred to the bank the savings bank business of the Government Savings Bank of New South Wales (est. 1871), and the current account and fixed deposit business of the Rural Bank Department. The bank also acquired the State Savings Bank of Western Australia (est. 1863).

Central Bank (1920–1960)

The bank's role in central banking expanded gradually after 1920. In 1931, the bank board came into conflict with the Labor government of James Scullin. The bank's chairman Robert Gibson refused to expand credit in response to the Great Depression (as had been proposed by Treasurer Edward Theodore) unless the government cut pensions, which Scullin refused to do. Conflict surrounding this issue led to the fall of the government, and to demands from Labor for reform of the bank and more direct government control over monetary policy.

In 1942, the Commonwealth Banking Corporation (CBC) suspended its operations in Papua New Guinea as the Imperial Japanese Army captured many of the towns in which it operated, and bombed Port Moresby. The bank resumed operations later, possibly in 1944.

The bank had many branches across Papua New Guinea including Port Moresby, Boroko, Rabaul, Lae, Wau, Bulolo, Goroka, Kavieng, Madang, Mount Hagen, Kundiawa, Popondetta and Wewak. On Bougainville there was Kieta, Panguna, Arawa and early on a part-time sub branch at Loloho. The bank maintained those facilities to support trade, local business, government and small savers.

The Commonwealth Bank received almost all central bank powers in emergency legislation passed during World War II and at the end of the war it used this power to begin a dramatic expansion of the economy. This was also the aim of the government at the time, which attempted to compel the Australian states to conduct their banking with the Commonwealth under the Banking Act 1945 (Cth), but the High Court in Melbourne Corporation v Commonwealth (1947) 74 CLR 31, blocked this move. The government also colossally expanded immigration programmes. To respond to this, the bank established a Migrant Information Service (later known as the Australian Financial & Migrant Information Service, or AFMIS). The bank expanded during this period. In just five years it opened hundreds of branches throughout Australia and in 1951 it established a branch in the Solomon Islands.

In 1958 and 1959, there was a controversy concerning the dual function of the bank as the central bank on the one hand and a commercial bank on the other. As a result of this, the government split the bank, giving the central bank function to the Reserve Bank of Australia, with the Commonwealth Banking Corporation (CBC) retaining its commercial banking functions. These commercial functions were exercised by the CBCs constituent banks, the Commonwealth Trading Bank of Australia (CTB), the Commonwealth Savings Bank of Australia (CSB) and the newly formed Commonwealth Development Bank (CDB).

From 1958 to 1976 the Commonwealth Bank operated savings bank agencies in the New Hebrides.

Diversification (1960–1983)

Commonwealth Bank of Australia savings passbook, issued 1977

A new Commonwealth Development Bank was established in 1960 and during the 1970s the bank diversified its business into areas like insurance and travel. It established a finance company, CBFC in 1974. The bank also became more heavily involved in foreign currency trading and international banking in general.

The bank actively supported the introduction of decimal currency in the years leading up to 1966 and, like most banks, it gradually converted its paper records onto a new computer-based system. The bank created the first credit card in Australia in 1974 when it established Bankcard. In later years the bank began offering MasterCards (1984) and Visa (1993) cards as well.

In 1974, as Papua New Guinea approached independence, the bank formally handed over its PNG operations to the newly created and government-owned Papua New Guinea Banking Corporation (PNGBC). The bank retained a restricted branch in Port Moresby that it finally closed in 1982.

In 1981 the bank transferred its operations in the Solomon Islands to the National Bank of Solomon Islands, which operated as a joint venture (51-49, Commonwealth and Government of the Solomon Islands).

Deregulation (1983–1991)

1980s logo

In 1989 the bank acquired 75 per cent of ASB Bank in New Zealand.

In 1991 the bank acquired the failing Victorian Government-owned State Bank of Victoria (est. 1842).

Privatisation and the Colonial merger (1990–2000)

Between 1991 and 1996 the Australian government fully privatised the Commonwealth Bank. The first share offer in 1991 was valued at $1,292 million, the second in 1993 for $1,700 million and the third was sold for $5,000 million in 1996.[7] It is a public company, but one of the few such companies in Australia whose official name does not end in 'Limited'.

In 1994 Commonwealth sold its shares in National Bank of Solomon Islands to Bank of Hawaii.

In 1994, Commonwealth took a 50% share in PT Bank International Indonesia.

On 10 March 2000, the Commonwealth Bank and Colonial Limited announced their intention to merge, with seven Commonwealth Bank shares being offered for twenty Colonial Shares. The merger received final approval from the Supreme Court of Victoria on 31 May 2000 and was completed on 13 June 2000. This brought into the fold Colonial’s stake in Colonial National Bank, the former National Bank of Fiji. The bank also acquired the remaining 25% of ASB Bank.

Banking opportunities in Asia saw the Bank in 2000 acquire full ownership of PT Bank International Indonesia and rename it (PT Bank Commonwealth). This bank now has over 16 branches and has opened several FX shops to cater to Commonwealth Bank clients who are tourists in Bali.

The bank today (2001–present)

Commonwealth Bank branch office

In 2005, the bank established strategic co-operation agreements with two Chinese banks, Jinan City Commercial Bank and Hangzhou City Commercial Bank; it took an 11% stake in Jinan City, and a 19.9% stake in Hangzhuo. Commonwealth also established a representative office in Bangalore, India.

On 27 January 2006, the bank acquired the remaining 49% stake in Colonial National Bank (Fiji)

At the beginning of 2008, Commonwealth Bank opened a branch in Ho Chi Minh City (Saigon). Then in October, Commonwealth announced that it had purchased Bankwest and St Andrew's Insurances from their parent company HBOS plc for A$2.1 billion.[8][9] The acquisition is scheduled to be completed in early 2009, subject to regulatory approval. Lastly, on 24 December, Commonwealth announced that it had, in joint partnership with Aussie Home Loans, purchased Wizard Home Loans.[10] As part of the deal, the Commonwealth Bank will acquire Wizard mortgages up to the value of A$4 billion. The Commonwealth Bank currently owns a 33% stake in Aussie.[11] Commonwealth Bank held about 30 percent of the loan business of financial advisory company Storm Financial when it collapsed in January 2009.[12]

In December 2009, Commonwealth sold Colonial National Bank to Bank of South Pacific.

The bank transferred their ATM service desk from HP Enterprise Services in Adelaide to ITS (Armaguard) in Sydney from March 2012. The bank will change from NCR and Diebold ATMs to Wincor Nixdorf ATMs over the coming years.

The bank is the only financial services organisation to appear in the Dream Employers' top 20 list of preferred employers for 2010 and 2011.[13]

Controversies

Commonwealth Bank is one of the major Australian banks known to be financing and profiting from activities destructive to the Great Barrier Reef, something the bank has been facing increased public scrutiny over since a 2013 report by Market Forces;[14] the Sydney Morning Herald had this to say:[15]

"Australia's big four banks are leading lenders to the massive expansion in coal and gas shipments through the Great Barrier Reef, contradicting their own pledges to curb carbon emissions and preserve sensitive environmental areas. ... The CBA, meanwhile, highlighted its achievement to cut carbon emissions from operations by 35,000 tonnes in 2012. A single bulk carrier shipment of coal exported from Australia would result in final emissions of four times those savings, Mr Vincent said."

In 2014, CBA and the big four Australian banks faced increased pressure to end their support for reef-threatening mining projects, as surveys have shown that "the big four banks would be risking customers shifting up to $236 billion in household deposits if they were to finance a project like the Abbot Point expansion".[16]

In late 2014, it "was revealed [CBA] was advising Indian coal miner Adani on its proposed development in Queensland's Galilee basin",[17] while by 2015, it has been reported that "all the major American and European banks have refused funds to the project, citing environmental damage".[18]

In May 2015 a report by Market Forces showed that CBA is the single biggest lender to fossil fuel projects within the Great Barrier Reef World Heritage Area during the six-year period from 2008 to 2014.[19] Almost immediately following, protests were held at over fifty CBA branches in Australia and around the world.[20][21]

Later in May, a report by MSCI showed that while other banks are reducing their funding for fossil fuel projects, Australia's largest banks are ramping up this same funding; The Guardian wrote that:[20]

"Australia's largest banks have committed about 10% of their known loan arrangements to the financing of risky fossil fuel projects that may become 'stranded' if the world is to avoid disastrous climate change, new research has estimated."

In October 2008 former CBA financial planner Jeff Morris alleged to the Australian corporate watchdog (ASIC) and subsequently a Senate Inquiry, the extent of the misconduct of CBA's financial planning arm, Commonwealth Financial Planning Limited (CFPL), but it was not until 16 months later that ASIC would launch an investigation.[22] "There was forgery and dishonest concealment of material facts," the Senate Inquiry found in its report.[23] They concluded a Royal Commission or Judicial Inquiry as it was deemed ASIC lacked the investigative powers required to uncover the full extent of the allegations.[24] A week following the Senate Inquiry, CEO Ian Narev publicly apologised while announcing a compensation scheme.[25] Former CEO Ralph Norris also conceded that he was aware of problems within CFPL acknowledging the presence of rogue financial planners but rejected the assertion of a conspiracy to cover it up.[26]

Forthcoming Royal Commission and Class Action concerning the BankWest Commercial Loan Book

In September 2008, Lloyds TSB bought HBOS in a deal worth over £12.2 billion. This was followed in October 2008 when, with significant problems of their own, HBOS/Lloyds TSB agreed to the sale of Bankwest and St Andrews Insurances to Commonwealth Bank of Australia (CBA) for an initial purchase price of A$2.1 billion. (Refer the Share Sale Deed).

At the time both HBOS and the CBA reported provisions for remaining consideration of circa $300 million. The acquisition was completed on 19 December 2008. (refer note 14 of the CBA 11 February 2009 half year profit announcement)

The BankWest pre acquisition loan book was funded by 66% in depositor funds, $530 million in Preference Shares, $17 billion in parent company wholesale funds, $2.1 billion in ordinary shares, $1.1 billion in retained earnings and a $597 million pre tax 2008A profit.(Refer the BankWest 2008A financial statements, the Share Sale Deed, and the CBA 11 February 2009 Investor Presentation).

At the time of acquisition BankWest was reporting to the Australian Prudential Regulation Authority (APRA) under to Basel I requirements, and under CBA ownership began reporting under Basel II Pillar 3 standardised approach requirements on 1 January 2009.(Refer the CBA 2009 Profit Announcement).

The BankWest performing loan book at the time of acquisition had a value of approximately $55 billion most of which was Non Investment Grade Standard and Poors (S&P) credit rated loans of BB to CCC.(Refer the BankWest Credit Policy, the BankWest 2008A financial statements and the CBA Answers to Questions on Notice to the Parliamentary Inquiry(PJC)).

Under the standardised Basel II approach, BankWest's Tier 1 Capital holding requirements were to increase from approximately $4 billion to $20 billion (a $16 billion increase).

An increase from an 8% Tier 1 Capital requirement under Basel I to an average 38% under the Basel II standardised approach .(Refer Fitch Ratings 2005 The Impacts of Basel II on Credit Markets Slide Presentation).

At the time of acquisition the CBA operated under Basel II advanced accreditation and its $285 billion loan book most of which was Standard & Poor'sAAA to BBB+ rated (Investment Grade). (Refer the CBA 2009 Results Presentation and the CBA 31 March 2009, Basel II Pillar 3 report).

On this basis the CBA had a credit rating of AA, and its Tier 1 Capital holding requirement was approximately $20 billion. (Refer the CBA 2009 Profit Announcement and the CBA Basel II Pillar 3 31 March 2009 disclosure statement).

The BankWest Commercial Loan Book as it stood at the time of acquisition, would have reduced the CBA's Commercial Loan Book from 66% investment grade to 53% investment grade, threatening its AA credit rating and its cost of interest across its entire $285 billion loan portfolio.(Refer the CBA 31 March 2009, Basel II Pillar 3 report)

HBOS was forced to sell BankWest due to its inability to replace the $17 billion in wholesale funding as it fell due, BankWest had replaced $3.75 billion in subordinated debt from the Reserve Bank of Australia (RBA) in replacement of some of that $17 billion that had become due.(Refer the 2012 Senate Economics Reference Inquiry 2012)

There was also a $12.2 billion run on BankWest's deposits in the 6 months ending 30 June 2010, adding further pressure on the BankWest wholesale funds. (Refer the BankWest 30 June 2009 Balance Sheet).

At the CBA 2014 Annual General Meeting (AGM) in answer to a question by Mr Francis Gilbert the CBA chairman Mr John Turner admitted that the CBA at the time the CBA bought BankWest it was not able to replace the BankWest wholesale funds. He stated:

“If you think back to 2008-2009, when all this occurred and you think about the executive of the Bank the top of the Bank they were deeply concerned that the Bank continued to exist....It was the time when wholesale funds for banks were almost impossible to obtain, it was the time when the Commonwealth Bank bought BankWest because Bankwest was in an awful lot of trouble........ and the board had auditors in to every meeting to ensure just to ensure that we came through this financial crisis satisfactorily right through to 2010” .

Mr. Ian Narev the current CBA CEO was "Group Head of Strategy, with responsibility for corporate strategy development, mergers and acquisitions and major cross- business strategic initiatives. He led the Group’s $2.1 billion acquisition of Bankwest in 2008", and developed the strategy outlined below.

The Share Sale Deed provisions provided the CBA at clauses 4 & 10 with price adjustment provisions. The Warranty Clauses are, 15.1, 15.3, 16.1, 16.2, schedule 6 cl 5.1 and clause 12 (c) of the Share Sale Deed provided the CBA with a $4 billion short term loan in support of the Warranty Clauses. (Refer the Share Sale Deed and the December 2015 CBA testimony to the PJC).

The warranty provisions of the Share Sale Deed, enabled the CBA to deduct amounts from the HBOS $4 billion loan it had secured, for pre acquisition BankWest loans it (the CBA) deemed retrospectively impaired.

BankWest operated under its own banking license until 2012, and the CBA had planned to operate BankWest under its own (CBA) license and extend to BankWest its Basel II advanced accreditation by 1 October 2012.(Refer the CBA 2009 and 2012 Profit Announcements and Results presentations).

Had the CBA kept the BankWest Commercial Loan Book, it (the CBA) would have faced a $45 billion increase in, recurring interest costs, and regulatory and capital holding costs.(Calculation estimate)

For the reasons of avoiding these costs the CBA unconscionably wrote off 1,958 BankWest pre acquisition Commercial Loans. Loans having a total combined value of $22,869 million and deducting the losses incurred in the write off process, from the $4 billion loan it (the CBA) secured from HBOS.(Refer the CBA Answers to Questions on Notice to the PJC, the BankWest 31 December 2008 financial statements and the Share Sale Deed).

In a recent supreme court case in NSW, the CBA admitted that this alleged conduct (should it be proven in court) is fraudulent and is the worst conduct imaginable levelled at an Australian Banking License holder.

At the 2 December 2015 PJC inquiry hearing, the Honourable Phillip Ruddock offered for the CBA to accept the appointment of "Independent agreed mediators" to determine the facts and circumstances relating to the impairment of the BankWest Commercial Loan Book, as opposed to the establishment of a forthcoming "Royal Commission". The CBA refused.

An information Memorandum, contemplating a $100 billion class action against the CBA, on behalf of the BankWest Commercial Loan Book Victims is presently under review.

Bank structure

Retail Banking Services

This division delivers financial services to personal and small business customers.

Premium Business Services

Premium Business Services was formally split into two departments in 2009, Institutional Banking & Markets (IB&M) and Business & Private Banking (B&PB). IB&M includes areas of the bank that provides services to Institutional Clients and Global Markets. B&PB includes areas of the bank that provides services to Business customers and private banking customers.

Wealth Management

Wealth Management brings together the Groups funds management platform, master funds, superannuation, insurance and financial advice business support. Colonial First State, Colonial First State Global Asset Management and CommInsure all form part of Wealth Management.

CBA has been granted a MySuper authority, enabling it to continue to receive default superannuation contribution from 1 Jan 2014.

International operations

The Commonwealth Bank's international presence includes:

  • Retail banks in New Zealand (ASB Bank), Indonesia (PT Bank Commonwealth), and China (11% of Jinan City Commercial Bank and 19.9% of Hangzhou City Commercial Bank).
  • Commonwealth Bank branches in London, New York, Tokyo, Singapore, Hong Kong, Auckland, and Mumbai
  • Wholly owned life insurance operations in New Zealand (Sovereign)
  • Joint venture life insurance businesses in Indonesia (Astra CMG); China (China Life CMG) and Vietnam (Bao Minh CMG)
  • First State funds management business in Hong Kong, Singapore, London, Fiji, China and Indonesia
  • Representative offices in Beijing, Shanghai, Hanoi, and Bangalore.

Products and services

The Commonwealth Bank is Australia's largest retail bank and offers customers a range of products and services, including loans, credit cards, transaction and savings accounts. It has the largest branch and ATM network.[citation needed] It also offers services to people planning to move to Australia.[citation needed]

Subsidiaries

Australia

New Zealand

Asia Pacific

See also

  • The State Savings Bank Building in Martin Place, used until 2012 by the Commonwealth Bank

  • CBA.jpg

    "Commonwealth Bank" signage at the State Savings Bank Building

  • "Commonwealth Bank" signage at the bank's headquarters building, on the corner of Pitt Street and Martin Place

References

Notes

  1. ↑ 1.0 1.1 1.2 1.3 1.4 Lua error in package.lua at line 80: module 'strict' not found.
  2. ↑ commbank.com.au
  3. ↑ Lua error in package.lua at line 80: module 'strict' not found.
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  7. ↑ http://unpan1.un.org/intradoc/groups/public/documents/eropa/unpan001420.pdf
  8. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  9. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  10. ↑ Aussie Home Loans and Commonwealth Bank to buy Wizard Home Loans Archived 24 December 2008 at the Wayback Machine
  11. ↑ CBA to buy 33% Aussie Home Loans stake Archived 8 February 2009 at the Wayback Machine
  12. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  13. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  14. ↑ Lua error in package.lua at line 80: module 'strict' not found.
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  20. ↑ 20.0 20.1 Lua error in package.lua at line 80: module 'strict' not found.
  21. ↑ Lua error in package.lua at line 80: module 'strict' not found.
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  25. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  26. ↑ Lua error in package.lua at line 80: module 'strict' not found.

Further reading

  • Lua error in package.lua at line 80: module 'strict' not found.

External links

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