Liked more by investors than customers, Ralph Norris has in just six years stamped his mark on the one-time fusty government-owned bank.
Norris has overseen a transformation of Commonwealth Bank, taking it from a management-heavy and inward-looking institution to a focused market leader. Commonwealth is used as a reference point by banks around the world as an example of boosting shareholder returns without moving up the risk scale.
In late 2005, Commonwealth Bank was facing the loss of market share to more nimble rivals in Westpac and ANZ. Shareholder returns were in the middle of the pack, while other key measures such as staff engagement and customer satisfaction trailed rivals by a significant margin.
Norris will hand over a bank to his hand-picked successor, Ian Narev on Wednesday that is firing on all cylinders, even in the face of a tough market. With rates of return on equity of 19.5 per cent, the bank has entrenched its status as one of the most profitable in the world.
It was just a short time ago that bank executives and even regulators were saying 20 per cent-plus rates of return were unsustainable over time. But this year, as the Commonwealth delivered a 12 per cent increase in full-year cash profit to a record $6.84 billion, the power of the bank's home loan machine was proven.
The bank was able to notch solid mortgages growth even as demand across the market collapsed to the lowest level in three decades. The bank's global financial crisis-linked market-share grab has also helped momentum over recent years.
While the crisis has hammered all bank stocks over the past few years, investors have done well out of the Commonwealth Bank.
Among key reforms has been Norris's heavy investment in technology. With banks increasingly being defined by their technology as more business moves online, this has given Commonwealth an edge over rivals of at least two years. Technology also provides crucial improvements in productivity critical when managing a business with a huge cost base.
After steadily climbing in customer satisfaction ratings under Norris, the Commonwealth Bank started to close in on the top-ranked ANZ. But last year it slumped from second spot to fourth among the majors due to the backlash from lifting mortgage rates by nearly double the Reserve Bank's rise in official cash rates last Melbourne Cup day.
Before Norris joined, the bank had consistently returned the lowest customer satisfaction ratings of the big four banks. "Importantly, he hasn't done anything stupid," BBY analyst and long-time CBA watcher Brett Le Mesurier said of Norris. "You can't always say that about bankers."
Other areas include keeping a tight control on costs in the retail banking business, while giving Commonwealth a market-beating rate of shareholder returns. Total shareholder returns, a measure of share price movements plus dividends, have seen an 84 per cent return to investors during Norris's six-year tenure. This has easily outpaced Westpac at 50 per cent and ANZ at 32 per cent during the same period. NAB, meanwhile, has returned 12.4 per cent on the same time scale.
Norris kept the focus simple. "He didn't carry on with any grandiose plans that were never going to deliver shareholder value," Mr Le Mesurier said.
CLSA analyst Brian Johnson said CBA has undergone an "amazing transformation" under Norris.
Frequently Asked Questions about this Article…
What impact did Ralph Norris have on Commonwealth Bank's performance as CEO?
Ralph Norris transformed Commonwealth Bank over six years from a management-heavy, inward-looking institution into a focused market leader. Under his leadership the bank delivered strong shareholder returns (about an 84% total return during his tenure), lifted return on equity to around 19.5%, and grew full-year cash profit by 12% to a record $6.84 billion, according to the article.
How did Commonwealth Bank deliver market-beating shareholder returns under Norris?
The bank combined heavy investment in technology, tight control of retail banking costs, and opportunistic market-share gains during the global financial crisis. These moves improved productivity and mortgage growth even as overall market demand weakened, helping drive above-market shareholder returns.
Is Commonwealth Bank more profitable than other big four Australian banks?
Yes — the article describes Commonwealth Bank as one of the most profitable banks in the world at the time, citing a return on equity of about 19.5%. It also notes total shareholder returns of roughly 84% under Norris compared with Westpac (50%), ANZ (32%) and NAB (12.4%) over the same period.
How did the global financial crisis affect Commonwealth Bank and its investors?
While the crisis hammered bank stocks generally, Commonwealth Bank used the period to grab market share, which helped its momentum in subsequent years. Despite broader market weakness, the bank was able to notch solid mortgage growth and deliver strong returns to investors.
What role did technology investment play in Commonwealth Bank's turnaround?
Norris made heavy investments in technology, giving Commonwealth Bank an edge of at least two years over rivals as more business moved online. The article says technology improvements were crucial for productivity — important when managing a business with a large cost base.
Why did Commonwealth Bank's customer satisfaction slip despite profitability gains?
Although customer satisfaction climbed under Norris and the bank closed in on ANZ, it slipped from second to fourth among the major banks after a backlash caused by lifting mortgage rates by nearly double the Reserve Bank's recent cash-rate increase on Melbourne Cup day, the article explains.
What does the leadership handover to Ian Narev mean for everyday investors?
The article notes Norris was handing the bank to his hand-picked successor Ian Narev at a time when the bank was 'firing on all cylinders.' For investors, that suggests continuity of strategy at handover, but the piece sticks to reporting that the transition occurs with the bank in a strong operational and financial position.
How did analysts describe Norris's approach to risk and shareholder value?
Analysts quoted in the article praised Norris for keeping the strategy simple, avoiding 'grandiose plans' that wouldn't deliver shareholder value, and 'not doing anything stupid.' The bank focused on cost control, technology and core mortgage growth to boost returns without moving up the risk scale.
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