Headwinds For Comyn & Comm Bank

I’ve known the new CEO Matt Comyn, on and off, for about 12 years – ever since he started running the online share trading unit Commsec, which he did a pretty good job with. (I was trying to get him to promote Eureka Report in the early days, but didn’t get anywhere, and I ended up with Etrade instead).

He’s clearly a smart guy, even though he wouldn’t do a once-in-a-lifetime deal with me, and he has the confidence of the board. Perhaps more importantly, he got a quiet tick from APRA.

The problem for Comyn, and CBA shareholders, is that the stock has not been downgraded enough to properly reflect its problems.

It’s still sitting on the highest PE ratio (13.5X, based on forward earnings forecasts, versus NAB 12.5, ANZ 12.1 and Westpac 12.5) and the lowest yield (5.6% vs 6.8%, 6% and 6.3%). This is no longer justified in my view.

Leaving aside the write-downs that are likely to come for fines and legal costs (I’ve seen estimates ranging from $700m to $1b) the reputational damage will take a while hit the bottom line and is hard to overcome.

As I wrote last week, trust in business is a more important commodity than cash and is much more difficult to get back if it’s lost.

Sometime next week, APRA will probably release a progress report from its inquiry into the “governance, culture and accountability” within CBA, headed by former APRA chair John Laker, with Graeme Samuel and Jillian Broadbent.

I’m not sure whether the interim report will contain recommendations, but whenever they come the list will be long, and serious. Laker, Samuel and Broadbent didn’t come down in the last shower and will want to justify their mandate.

So there are likely to be changes to management reporting lines plus more direct involvement by the board in management, a review of financial objectives and, in particular, how they relate to remuneration structures and incentives, more education in cultural issues for executives plus some additional accountability for past misdeeds.

In other words, the whole thing is going to keep the board, Matt Comyn and his direct reports busy all year, and probably into 2019. They will be distracted and weighed down by governance stuff, in addition to the CEO having L plates.

This is the time for competitors – the other majors plus disruptors – to come after CBA in a big way, and they won’t let the chance go by. 

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About Alan Kohler

As well as being the founder of The Constant Investor, Alan is currently business editor at large of The Australian, finance presenter on ABC news, presenter of the Talking Business channel on Qantas inflight radio and adjunct professor in the business faculty of Victoria University.

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