Commbank Defends Disclosures

THE Commonwealth Bank's board is standing firm behind its top executives as regulators this week plan to assess whether the banking giant breached disclosure rules surrounding its $2 billion capital raising.

Senior CBA treasury and financial officials are coming under intense pressure over the affair, and the bank is expected to seek talks with investors in the new year to smooth any possible damage to its reputation.

In a statement the CBA chairman, John Schubert, said its chief executive, Ralph Norris, and chief financial officer, David Craig, had the "full support" of the board. Mr Craig has come under intense criticism from analysts over the matter and declined to comment when contacted yesterday.

It had been speculated that the CBA board would review the affair, but it is understood no board meetings have been planned for this week.

CBA has so far disputed any rules were broken when it tried to warn a small group of investors about the rising level of bad debts before the information was made public. The bank claims there was no need to make its warning public earlier because it did not consider the information materially significant.

The Herald last week reported that the Australian Securities Exchange had referred the matter to the Australian Securities and Investments Commission for further investigation.

CBA has previously told analysts that a material issue was one that had in excess of a 10 per cent impact on earnings.

But analysts disagreed with that interpretation, saying it would translate to an earnings swing of hundreds of millions of dollars. "I would consider that material kicks in well before then," an analyst said yesterday.

Rival bank executives said CBA should have made it more broadly known to the market as soon is it was certain that bad debt charges had exceeded internal forecasts.

"Good governance says whenever you are aware of a material impact on your profit then you should come out straight away," a senior finance executive at a rival bank said. "Something like this has a huge impact on reputation."

CBA admitted it had been aware for more than a month that its bad debt charges had been running higher than expected. On November 13 it told investors it expected bad debts to run at between 0.4 and 0.5 per cent, but three days later, management was told that bad debts would run at 0.6 per cent, a figure it revealed to investors only last week.

It said this information was considered confidential because it was only in possession of management and "was information that a reasonable person would not expect to be disclosed".

A spokesman for CBA declined to comment on possible dealings with ASIC over the matter but said the bank always sought to fully co-operate with regulators.

Several big names have recently fallen foul of continuous disclosure rules. Rio Tinto paid a $100,000 fine in May for sloppy disclosure over its $US38 billion ($56 billion) purchase of Alcan.