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Simple focus has paid off for CBA investors

LIKED more by investors than customers, Ralph Norris has in just six years stamped his mark on the one-time fusty government-owned bank.

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, inward-looking institution, to a focused market leader. CBA is often 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 CBA 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 big margin.

Next Wednesday Norris will hand over a bank to successor Ian Narev that is firing on all cylinders, even in a tough market. With rates of return on equity of 19.5 per cent, CBA has entrenched itself as one of the world's most profitable banks.

Not long ago bank executives and even regulators were saying 20 per cent-plus rates of return were unsustainable. But this year, as CBA 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.

CBA still notched up solid growth in mortgages even as demand collapsed to the lowest level in three decades. Its global financial crisis-linked market-share grab has also helped momentum over recent years.

While the crisis hammered all bank stocks over the past few years, investors have still done well out of CBA.

Among key reforms has been Norris' heavy investment in technology. With banks increasingly being defined by their technology as more business moves online, this has given CBA at least a two-year edge over rivals. 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, CBA started to close in on the top-ranked ANZ. But last year it slumped from second spot to fourth among the majors after it raised mortgage rates by nearly double the Reserve Bank's rise in the official cash rate on Melbourne Cup day 2010.

Before Norris joined, CBA had consistently returned the lowest customer satisfaction ratings of the big four banks.

"Importantly he hasn't done anything stupid," said BBY analyst and long-time CBA watcher Brett Le Mesurier says of Norris. "You can't always say that about bankers."

Other areas include keeping a tight control of costs in the retail banking business, while giving CBA a market-beating rate of shareholder returns.

Total shareholder returns, a measure of share-price movements plus dividends, have been at 84 per cent during Norris' six-year tenure. This has easily outpaced Westpac's 50 per cent and ANZ's 32 per cent over the same period. NAB over the same period has returned 12.4 per cent.

Indeed, Norris kept the focus simple.


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