$700m of Star dice - Commonwealth Bank failed to share loan risk
The Commonwealth Bank has been left with an estimated $700 million loan exposure to Sydney's Star City casino after failing to find other banks to share in the risks.
The Daily Telegraph asked chairman Tim Besley why the loan - one of the three largest exposures held by the bank had been made at a "skinny" profit margin of just 0.75 percentage points above the bank bill rate.
Mr Besley told shareholders at the CBA annual meeting in Melbourne he had no involvment because he is chairman of Leighton Holdings, which built Star City and is one of its largest equity investors. Similarly, he said Anna Booth, a CBA director and Star City executive, was also not involved.
It was left to managing director David Murray to explain the loan and while not dealing with the specifics, he effectively admitted the bank had been unable to find other banks to syndicate it with and had breached internal credit limits.
"It is possible for those limits to be exceeded where we set out to syndicate the loan and we cannot syndicate it due to changed positions in the syndication market," he said.
"Those markets did change radically this year with the collapse of the Japanese banking system and withdrawal of the number of foreign banks from the syndication market.
"Therefore, there are circumstances in which we can be left with larger exposures than we would otherwise prefer. However, the risk could be spread "by later selling part of the loan", he said.
Mr Murray also confirmed CBA made "a very satisfactory gain" on its investments on the M4 and M5 toll road projects which it sold to the Hastings infrastructure group for $260 million earlier this month.
However, this was slightly offset by small writedowns on its holdings in Brisbane airport and the Victorian power generation sector.
Mr Besley also said CBA was expecting "modest growth" in profits in the year ending June 30, 1999, and promised to at least maintain dividend payments which totalled $1.04 billion last year.
This growth will be achieved despite Mr Murray's concern that "margins will continue to fall gradually over time". This is likely to be offset by ever-increasing fees and cost containment through more branch closures and job shedding.
Mr Murray also forecast interest rates would remain steady until the new year.
CBA shares closed 5c lower at $19.48 yesterday, suggesting the one million share options approved for Mr Murray yesterday will cost him almost $20 million if they are exercised.
Commonwealth Bank boss sorry for herograms
Commonwealth Bank chief executive David Murray yesterday humbly apologised for claiming Australians should be sending telegrams of congratulation to the major banks rather than complaining about branch closures.
Mr Murray said he was "a little bit surprised" at the backlash against the bank over moves to close branches at Lalor Park, Carlton and Penshurst in Sydney, particularly as a Federal Government committee held the Commonwealth Bank up as a model for handling rural branch closures.
But he warned that worldwide trends and alternative technologies such as telephone banking, the Internet and EFTPOS meant there was "no doubt there will be some continuing reduction in the branch population". He apologised to about 1000 shareholders at the bank's annual meeting in Melbourne.
Last week he told a business lunch: "Instead of politically inspired letters that I get for closing a couple of branches, the people of Australia should be sending telegrams of congratulation to each of the major banks."
Yesterday, he said: "Some comments that I made . . . were taken as a put-down of people affected by branch closures. I was extremely sorry that that was taken that way.
"To the extent that any of our shareholders have been caught in the flak or been given any reason for anxiety over this issue by this publicity, I also apologise to them."
Despite protests about the Sydney closures, the threatened busloads of angry customers did not make the trip to Melbourne for the meeting.
The Commonwealth Bank reduced its network of branches by 116 to 1215 in 1997-98 and Mr Murray said closures would continue this year.
Shareholders were generally pleased with the bank's performance. Its shares have risen from $5.40 to almost $20 since 1991 when it was floated.
Annual profits of more than $1 billion are now a regular feature and Mr Murray said this was thanks to tough decisions in areas such as branches and staff numbers.
Copyright © 2022 The Mayne Report. All rights reserved