CBA is a leaner


The country’s biggest bank knows where it’s bread is buttered. From the ABC:

The chief executive of the Commonwealth Bank has weighed in with advice on the government’s budget woes, signalling compromise might ultimately be necessary.

Ian Narev has told the “AM”  program that the Prime Minister and Treasurer need to be pragmatic about what spending and cost-cutting measures will make it through the Senate.

Mr Narev says while the government’s controversial paid parent leave policy “is ultimately a political judgement”, in the eyes of voters it was a key part of Tony Abbott’s election mandate.

“By and large, I think when people elect politicians they understand they stand for certain policies but we’ve also got to be pragmatic and understand that in a certain political environment that governments need to make compromises,” Mr Narev said.

…”I’m not sure a mini budget is the answer. The Treasurer can make his own judgement on that. He has outlined what we consider to be a very appropriate high level vision which is to say over the medium to long term you need a government which is fiscally responsible,” Mr Narev said.

Mr Narev, who was speaking after the CBA revealed a full year net profit on $8.63 billion, said the government needed consider how its budget problems might be viewed by international ratings agencies.

Last week, respected economist Saul Eslake warned that a failure to get the budget deficit below $3 billion as forecast by 2017-18 could put Australia’s AAA credit rating in the spotlight.

“He (Mr Hockey) has outlined  that he feels that is a risk and I think there’s no doubt that there is a risk,” Mr Narev told AM.

“The idea of getting  the fiscal balance sheet to the point where it is in balance has got to be a critical part of the economic vision.

“The ratings agencies in the long term are some of the important stakeholders you’ve got to bear in mind.”

Do we, now? Or, is it more accurate to say that the CBA needs to bear it mind? OK, I’ll agree, but only so it gives us time to undo the CBA’s stranglehold on the Budget, not so Mr Narev can carry on with artificially high returns on equity at the expense of the tax-payer.

Banking Day has more on the CBA tax-payer rort:

The practice of sticking with a “harmonised capital” ratio continued at CBA yesterday. This is an approach fraught with confusion for investors, writes John Watson from Margate Financial.

CBA, in its full year 2014 profit report, advised the market that their tier 1 APRA compliant capital improved by 110 basis points to 9.3 per cent as at 30 June 2014. 

The bank also claims that its fully Basel III harmonised capital position also improved by 110 bps to 12.1 per cent. 

My work at Margate Financial Research Solutions with Morgij Analytics has found several problems with CBA’s representation of its harmonised capital.

Firstly there is no internationally agreed nor approved capital harmonisation methodology.

In fact, both the Basel Committee for Banking Supervision and the International Monetary Fund have concluded that given current disclosure limitations and inconsistencies such a comparison is unachievable. 

Secondly, as recently as July 2014 APRA chairman Wayne Byres and FSI chairman David Murray publicly repudiated the claims of CBA and the other major Australian banks that their capital positions were “way out in front of their international peers.”

Thirdly, a Basel Committee Regulatory Consistency Assessment Program March 2014 review of APRA found no material differences between the capital calculations of APRA and Basel III standards. 

Fourthly, an independent study by Morgij analytics and Margate Financial Research Solutions released in May 2014 found no evidence to justify any uplift to the capital ratios of the major Australian banks.

Pure Deep T. and spot on.

So, the country’s biggest bank feels it can sustain its own fairy land capital measures in defiance of the regulator and the Government, and is quite comfortable getting on the national broadcaster to push for a renewal of the public guarantee that results, no matter the cost.

That thar is entitlement.

Houses and Holes
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  1. Charging a market rate for that guarantee might make a nice contribution to that budget (and AAA) concern

  2. Why doesn’t Narev publicly call for withdrawal of the government guarantee instead of this silly string of nonsense analysis?

    Nothing will boost more confidence than that.

    • lol, you been taking crazy pills bro?….. those guarantees made them over 8 billion in profit. You think they want to give that up?

      • Of course, they won’t give up these guarantees, BECAUSE THEY NEED THEM.

        So Narev should just shut up and stop pretending that the bank has adequate capital.

  3. ceteris paribus

    So thanks a million Paul Keating for the privatisation of the Commonwealth Bank. It now treats its customers like dirt and rules the citizens of the citizens of the land.

    So much for accounting for the social and economic impacts of political decisions.

    Keating was a two bob capitalist.

    • You’ve hit the nail on the head ceteris. The enormous amount damage done to Australia which indirectly stems from the privatisation of the CBA goes largely unaddressed. Done deal now though.