THE DISTILLERY: CBA acclaim

One of the greatest challenges new Commonwealth Bank chief executive Ian Narev faces is to distinguish himself from formidable predecessor Ralph Norris. Indeed the "fingerprints” of Norris were all over the Sydney-based bank's results, according to more that one commentator. But through the writings of The Australian Financial Review's Matthew Stevens and Tony Boyd, and The Australian's John Durie, we find that Narev is poised when handling the claim that Australian banks are too profitable, assured that CBA has a strategic advantage over its rivals that are cutting staff to save money, and prepared for what will likely be a coming plateau in deposits.

But first, we start with defending your turf. The Australian Financial Review's Matthew Stevens was impressed by the calm manner in which Narev rejected the notion that Australian banks are excessively profitable by global and domestic comparisons.

"CBA research identified four nations (Indonesia, China, India and Russia) where banks generate wealth at rates better than the Australian sector's 15 per cent return on equity. But Narev's focus fell on Canada, an economy that, like Australia's, emerged pretty soundly from the GFC. Banking return on equity in Canada is on par with here. From there Narev moved to banking's comparative standing among Australian companies. It turns out CBA is our second-biggest company by both market capitalisation and dividends paid, and our third-biggest corporate taxpayer. But its 19.2 per cent ROE leaves it ranked 32nd among locals, while its return on assets of just 1 per cent leaves it placed 77th.”

Granted, return on assets is supposed to be lower by comparison to other companies because CBA is a lender. But the point is taken that Narev has a clear defence of his institution's apparently diabolical profitability. The Australian Financial Review's Chanticleer columnist Tony Boyd says Narev's background as a consultant gives him a reasonably detached and pragmatic perspective on banking problems.

"One advantage that CBA will have over other banks is its treatment of its workers. One reason Narev does not whinge about the Fair Work Act is because Norris made a special effort to engage directly with CBA staff. He managed to meet staff demand for wage rises while achieving productivity gains. It is doubtful whether any other bank in this season of interim and quarterly profits will have its results greeted with a complimentary press release from the Finance Sector Union. Narev has recognised the importance in financial services of having highly motivated staff who can not only keep customers happy but sell other products."

And while The Australian's John Durie is one of many to say that yesterday's numbers belonged to Norris in a big way, the commentator looks ahead at how Narev will continue to shape CBA in an era with low lending demand and deposits that are surely finding a ceiling as a percentage of the bank's funding.

"His strategy briefing in April will be built around what he sees as a strong customer service focus, but one that every person needs to constantly improve. That mantra is what he thinks is a core competency in the bank and key strengths to take it into new markets based on its ability to deliver new technology into the financial services sector. He is also positioning the bank on the assumption that with about 29 per cent share of deposits and 26 per cent of homes loans it is probably reaching its natural limits, or at the very least cannot expect massive revenue growth based on grabbing more share.”

After analysing Narev there isn't much room left in this morning's Distillery for other commentaries. The Age's Michael West gets a special mention for his investigation into the Australian Securities and Investments Commission. It reveals that the corporate regulator has been shirking its responsibility to make an indexed list of their files every six months, something that has been required of all government departments since 1994.

"Not all of ASIC's files have to be included in the lists. For example case files and files that go to the internal management of the agency are excluded. But files relating to the policy advising functions of ASIC are required to be included in the six-month file lists. Additions to existing files in the prior six months are also included. Something extraordinary has been happening to the ASIC six-month file lists in recent times. The lists seem to be shrivelling to next to nothing. The number of files disclosed by ASIC as required by the Senate has fallen off a cliff. The most recent list for the six months to 30 June 2011 disclosed only 12 files equivalent to one file for every 165 ASIC employees. In contrast, the list for the six months to December 31, 2007 disclosed 217 files.”

Going back to banks for a moment to round out this morning's commentaries, The Sydney Morning Herald's Ian Verrender suggests that a more appropriate mascot for CBA might be an elephant, given the undeniable strength of its latest set of numbers, while adding that falling loan demand is a much greater threat to the lender's bottom line than cramped margins. The Age's Eric Johnston agrees with the aforementioned commentators that Narev has stamped his authority on Australia's largest bank by market cap. The Herald Sun's Terry McCrann reminds his readers that there are more stakeholders in the banks beyond mortgage holders and even shareholders, while The Australian's Richard Gluyas gives Treasurer Wayne Swan a good kick for attacking the big four banks as he uses them as boasting material to his overseas counterparts.

Still in company news, The Age's Adele Ferguson says Westfield has got its mojo back after going into turtle mode during the GFC and emerging through its listed trust strategy which has been disappointing for the last year or so. The Sydney Morning Herald's Elizabeth Knight says it's hard to believe Fortescue Metals boss Andrew Forrest would ever offload the company without a premium that reflects its prospects, while The Australian's Barry Fitzgerald says Forrest's penchant for stretching the iron ore miner's production targets is finally catching up with him – though it's not a massive deal. In a separate piece, Fitzgerald touches base again with OZ Minerals, still arguing that a takeover of Sandfire Resources is not on the horizon.

Meanwhile, The Australian's Bryan Frith discovers that the battle between RCL Group and a handful of frustrated shareholders shares some similarities with the AMP Shopping Centre Trust hidden poison pill encounter. Fairfax's Insider columnist Ian Verrender can't wait to find out whether engineering group Ludowici has yet another suitor in the wings, while The Australian's Tim Boreham takes a glance at Coffee International, The Reject Shop, Noni B, Domino's Pizza and Fortescue Metals Group in his Criterion column.

In economic news, The Sydney Morning Herald's Malcolm Maiden expects the Australian dollar to go even higher thanks to the European Central Bank's decision to opt for a second round of bargain financing at the end of the month. This is a good reminder about what exactly European banks do when they're given some health with liquidity (their first instinct isn't to lend to European businesses and homebuyers). The Australian's Robin Bromby finds a Perth-based broker issuing unavoidably disappointing expectations for metals prices by the year 2016-17.

The Australian Financial Review's Alan Mitchell says Opposition Leader Tony Abbott and his industry spokeswoman Sophie Mirabella have pledged to support the manufacturing industry from the residual costs of the mining boom and overseas competition, but that will necessarily reduce the sector's incentive to innovate and increase productivity.

And finally, The Australian's Rowan Callick delivers a good piece explaining the prospects of a new technology to combine coal power with gas and reduce emissions from the former source by around a third. Unfortunately, the mere mention of the word coal discounts it from the political discourse of some of the loudest members of the environmental left.