CBA raises hackles in rejecting ASIC finding
The Age
Thursday October 15, 2009
The bank misses the point in its pugnacious response to criticism. COMMONWEALTH Bank's aggressive defence of the events surrounding last year's $2 billion capital raising was clearly aimed at any investors looking to take the issue further.In other words, forget it €” the nation's biggest bank is in a fighting mood.It's wasted bravado because there is unlikely to be much appetite among shareholders for a prolonged legal stoush. Especially as those who bought in to the capital raising at a bargain-basement price of $27 a share last December are now sitting on a 100 per cent return.Complete with a $100,000 fine and a wrap over the knuckles for CBA by the regulator, the matter is set to become just another footnote in the story of the market turmoil in the months that followed the collapse of Lehman Brothers.But it was CBA's reaction to the Australian Securities and Investments Commission infringement notice that put many offside.The banking giant attempted to explain away the issue by saying no one had been hurt given that overall profits weren't likely to be affected by rising bad debts given revenue was booming.This is a little like telling analysts and fund managers not to worry about how earnings are generated but just to look at the final number.It also ignores the fact that investors rely on material information about items like provisioning or revenue growth because it offers a wider story about what is going inside the bank.One analyst noted yesterday: "I might look at [whether] bad and doubtful debts are sustainable; I may look at whether revenue growth is sustainable. As an analyst, I need those components to make an informed view on the value of a stock."Merrill rushed through the capital raising to big investors in just under an hour, but institutions that bought in did not learn CBA had upped its loan provisions until 7.14pm €” several hours before Merrill made initial soundings to the market.ASIC yesterday claimed CBA knew about the revised bad debts at about 3pm, but didn't tell Merrill until 3.59pm.Rather than being drawn into the CBA and Merrill dispute, ASIC said the bad-debt position should have been disclosed to all shareholders.Fallout from the affair at the time placed chief executive Ralph Norris and his chief financial officer, David Craig, under intense pressure from the bank's board. However, both have since rebuilt support, particularly for steering the bank through a tough market.Brokerage Merrill Lynch also suffered a major setback in the Australian market and long-time local boss Paul Masi is now out of a job. There is no suggestion that the capital raising was the reason behind Masi's exit this month, but the affair clearly damaged relations with a potentially lucrative client.Mr Norris' complaints all the way to the top of Bank of America €” Merrill Lynch's owner €” may not have helped Masi's position.
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