Skip to main content

Commonwealth Bank dribbles a bibful

What do bankers get paid for again?

Yeah, I know there's an element of schadenfreude in commenting further on this parochial little cock up by the Commonwealth Bank in fumbling its $2 billion excluded-offer equity placement to institutions on Tuesday afternoon, but it truly shows again how "experts" can stuff up.

What is it that all those thousands of spectacularly highly paid executives, lawyers, corporate governance consultants and compliance advisers at Merrill Lynch and the Commonwealth Bank do for a living when a mistake as fundamental as this can occur during a placement of this size in a market as skittish and as vulnerable as we have at present?

As I understand it from the press:

On Tuesday afternoon, with CBA stock still being traded on the ASX at around $29 a share, Merrill Lynch received acceptances to place $2 billion of CBA shares from institutions at $27 a share. This placement was apparently to top up CBA's tier one capital adequacy levels to bring it in line with its major Australian banking peers, so as to keep perceptions of its stability in tact in the current international credit crisis. The placement seems to have been completed at around 4.30pm after the ASX market close at 4pm . At around 7.30 pm CBA announced a successful $2 billion placement in a media release. The release also had tagged on to it disclosure of a material downgrade in CBA's bad debt provisioning for 2009 (apparently partly arising from its contemporaneous decision to continue to extend credit to the struggling Centro Property Trust).

All hell then apparently broke loose amongst the institutions who had taken shares in the placement during that afternoon, without knowledge of impending material change in CBA's bad debt provisioning. Overnight a significant number of them withdrew from proceeding with the placement on the basis that there has been a material change in circumstances not disclosed to them. At some point overnight Merrills advised CBA that they were not proceeding with $1.6 billion of the placement (approx $400 million was locked in).


On Wednesday morning the CBA board , understandably, had an emergency meeting and UBS (who had previously unsuccessfully tendered for the placement) were, amazingly, on hand to offer an alternative placement for $1.6 billion at the lower price of $26 a share. UBS apparently successfully placed the CBA stock with institutions at this lower price during Wednesday morning.

At this point all you can say is "shit", what a stuff up, and "boy", how lucky were CBA that UBS could step into the breach and raise $1.6 billion in such a short time?

But here's where it really gets interesting for a ghoul like me, looking at the entrails of this near catastrophe after the event. Sure Ralph Norris the CBA CEO is hunting for culprits for this monumental stuff up, but it is possible that he is directly implicated in what may be the biggest stuff up of all here. This is not the astonishing failure to disclose the market sensitive information before the placement. That was indeed an act of stupidity. But worse, in pointing the finger of blame at Merrills after the event this is what CBA apparently said: ...

"Merrill Lynch did not inform potential investors of the various disclosures made by the Bank in its announcement to the ASX at 7.30 pm on Tuesday", it said. "The Commonwealth Bank is disappointed Merrill Lynch did not meet its obligations."

Is this an admission by CBA that CBA actually knew what it disclosed at 7.30 pm on Tuesday, earlier in the day when Merrills were putting the placement away at $27/share, and expected Merrills to tell the institutions this news then? It sure looks like it. If so then CBA appear to be saying that it had planned for the institutions to apply for shares at a price below the prevailing market price, with different and materially adverse information about CBA, that CBA had not disclosed to the market. Who knows? I'd have thought their easiest defence to allegations of impropriety by CBA would have been for them to claim it did not know the adverse position on bad debts 'til after the market closed and the Centro financing had finalised. But they seem to have taken that line of argument away from themselves by suggesting that Merrills had already been told the bad news by CBA, and CBA expected Merrills to pass that bad news on to the instos, when pitching the placement to them.

Although you may be forgiven for thinking otherwise, my experience is that, thankfully, this not how private securities placements are normally done on the Australian market.
Selective disclosure of market senstive information by or on behalf of a listed company to potential placees of its stock whilst the market is open is not customary and is seldom if ever admitted to.

The biggest stuff up therefore may, yet again, lie in the attempted cover up. The haste with which CBA have decided to place the blame for the absence of disclosure on their broker, may have seen them stumble even deeper into hole that they are digging for themselves.

Comments

Popular posts from this blog

Michael Jackson, martyr ?

. Someone has to die for their beliefs to be a martyr . Drudge pointed to headlines last Friday saying that Jackson's was a " Death by Showbusines s". So in the sense that Jackson seems to have died for his belief in celebrity, yes, he might be called a martyr. I never got Michael Jackson. Thriller didn't thrill me at all ( Now Noel Coward, that's another story ). But I did get a bit of a kick from seeing others get him. He was boppy and catchy and slick, as well as monumentally fluffy and hugely impaired. What I struggle with is the apparently massive consequentiality of fluffiness and impairment like Jackson's. What is the fuss about the passing of a semi-talented song and dance weirdo from decades past? Boris Johnson, the London Mayor, has had a stab at explaining it to we mystified souls who struggle to get with the programme. He reckons it's just like Princess Di. And I agree, to the extent that I was almost as unprepared for and dumbfounded by th

Today's Woke guide to Gender, Race and Climate

Gender, Race and Climate. These are the big ideas that matter in the 21st century. So get with the Zeitgeist folks.  You gotta go woke. As I understand the current, constantly changing, received progressive position on these big 3 topics, here's what we're supposed to think and believe: Gender : A person can be whatever gender they want to be. Anyone who thinks or says otherwise commits a crime against humanity. Race : Only blacks, the indigenous and people of colour can have and express legitimate views on blacks, people of colour and indigenous issues. Any white person doing so is a racist, wrongly appropriating the exclusive privilege of disadvantaged victims. Accordingly it is wrong for a non-BIPOC person to believe or, worse, say that all races are equal and that we should never discriminate against any person on the basis of race. This is because a non-BIPOC person cannot understand racial prejudice because they have not experienced negative racial discrimination and beca

Perpetual pretenders proclaiming possession of Truth ... (fact check the fat cheque)

Samizdata.net  have pointed me to an article in Public entitled " Nacissism of the Fact Checkers ". It's a sobering though disturbingly unsurprising read.  It adds to the litany of distressingly wrong facts that have been endorsed and perpetuated by the "official narrative" and with the reciprocal suppression or censorship of correct "falsehoods".  Here's a list of such behaviours by fact checkers from the article: - calling out a self avowed parody site for misinformation on the Paris riots for posting a typically over the top clip from the action movie "Fast & Furious"; -  that claim by the New York Times, AP and the BBC that fake news travels 6 times faster than the factual news, turns out to be fake news itself. The claim is based on a single MIT study on small number of tweets , not news. - Facebook removing 20 million posts, and labeling 190 million posts about Covid-19 as "content moderation" because those posts did