COMMONWEALTH BANK

• The APRA investigation is not to be taken lightly. It is going to keep the lawyers and senior management busy for some time. Couple that with the AUSTRAC inquiry. There is now talk that CBA could be reviewed by credit agencies with a negative effect on the bank. What is certain is that there will be a management and cultural shakeup. The banks though are big more making machines. CBA made nearly $10bn in profits. The actual business is doing very well. To some extent these big behemoths run themselves. Management and the board set the culture and the focus but there are almost autonomous money machines. Just as long as no one stuffs up with a dodgy acquisition or a change in strategy, the money keeps rolling. Australian banking is not rocket science. Keeping regulators happy and off your backs is the tricky thing. CBA have failed spectacularly to do this. They have brought an unnecessary scrutiny to the whole sector and the others will not be happy at all. The stock price has underperformed and will probably continue to do so but bear in mind that this too shall pass. The money will continue to roll in. The other banks will be emboldened by the events at CBA and now have a chance to step up the pressure on the business. This is a risk for CBA. For years CBA has traded at a premium, this current phase of investigation will see that premium erode. But at some stage the fall will provide a good buying opportunity. Not yet though. There will be a serious management reshuffle to please the regulators but will not affect the core business or the investment case when the dust settles. Just need to be patient. Quality money machines being knocked down do not come along every day but there is no reason to rush just yet. More management changes would be a positive sign and it would not be a surprise to see Ian Narev ‘retire’ early. This would be a positive signal that new Chair Catherine Livingstone is making the cultural changes that the regulators require.