Money And Clout

Sydney Morning Herald

Thursday October 29, 1998

IAN VERRENDER

While the Commonwealth Bank's chief has been in damage-control mode for most of this week, IAN VERRENDER reports that public discontent with the industry has been bubbling under the surface for almost a decade.

IN TERMS of a quick soundbite, it was right on the mark. Blanket coverage on radio, television and the newspapers. But if David Murray, the managing director of the Commonwealth Bank of Australia and confidant of the Prime Minister, John Howard, hoped it would swing the tide of the argument back in favour of the banks, he was sadly mistaken.

"Instead of politically inspired letters that I get for closing a couple of branches, the people of Australia should be sending telegrams of congratulations to each of the major banks and some of the others as well," he told an American Chamber of Commerce lunch in Sydney last week.

The words created a furore, unleashing a torrent of community abuse against banks in general and Murray in particular.

At Canberra airport yesterday, as he was boarding a flight to Melbourne to prepare for the Commonwealth's annual general meeting this morning, the 48-year-old chief of Australia's biggest bank was steeling himself for further attacks. To put it bluntly, he'd wished he'd expressed himself somewhat differently.

"People rail against arrogance, and those comments were seen as arrogant," he says. "Although they [the comments] were meant to be tongue in cheek, they were quite insensitive, particularly with the way people are feeling about bank closures.

"To start with, there have been a lot of bank closures whereas my comments referred to there being just a few."

In the past three years, the Commonwealth has shut 223 branches as it has embarked on a cost-cutting program largely completed by its competitors several years earlier. Many have been in rural areas where the exit of the Commonwealth not only has inconvenienced customers and resulted in job losses, but has served as a graphic symbol of rural decay.

In recent weeks, there have been anti-Commonwealth Bank rallies in Sydney and in the suburbs and attacks by State MPs, including the NSW Attorney-General, Jeff Shaw, who has advocated new laws to force banks to guarantee a level of service to communities.

In a candid moment, Murray says the appearance of arrogance was heightened because of his options deal - which may deliver benefits worth more than $15 million - which will be voted on at this morning's annual meeting.

He says he understands the backlash when he listens to his comments in the context of the upheavals at the bank since its privatisation. "Banks take in the savings of a community and are in a position of trust, so the community is always quick to respond during a time of change," he says. "But this is a public company and we are charged with building the business over the long haul.

"We could have opted for a much narrower client base but instead we've decided to maintain our business by becoming more efficient and by offering our clients more options than they had before.

"It's impossible to do that without less employment and fewer branch numbers."

The move to ATMs (automated teller machines), agency arrangements in supermarkets and electronic funds transfer have been fundamental to the changes. There now is less need for face-to-face contact at branches. But older Australians have been uncomfortable with the technology and are the most vocal opponents of branch closures.

Before 1985, when the banking system was deregulated, the only way Australian banks could compete for business was through numbers on the ground. Given there were no cut-price loans, no attractive investment rates of interest, banks competed for business by building ever- expanding networks.

"Back then, if the banks were questioned about anything, they simply answered that it was because of regulation. But people couldn't see the effects of the regulation because prices were hidden by cross-subsidies. There were winners and losers under that system."

When he joined the Commonwealth Bank of Australia in 1966 straight from school, shortly before his 17th birthday, it was essentially because he couldn't think of anything else to do.

David Murray had no great vision, no great ambition. Even if he had secretly harboured a perverse desire to become the biggest bastard in Australia, there was no way he could have achieved such a goal merely by climbing the ranks at the moribund old bank.

Back then, the Commonwealth was a Government-owned institution. Every year it employed tens of thousands of young school-leavers, just like the youthful Murray.

All had a job for life. If they stayed long enough, they would move away from the teller's counter. A select few would rise to the exalted position of branch manager, become members of the local Rotary Club and bask in the collective respect of the local community.

How things have changed. Banking now is a cut-throat business. The shareholders have to be kept happy. That means earning bigger profits and the best way that can be done is by keeping the customers satisfied.

Until recently, Murray thought he was making a fair fist of it. Billion-dollar annual profits, a share price nudging $20.

But discontent with the banks has been bubbling under the surface for most of this decade. In the latter part of the 1980s, Australia's banks gorged themselves on the fat commissions of loans to entrepreneurs. When those same entrepreneurs toppled and all the major banks wrote off billions of dollars in bad debts, the banks looked to the one sure source of income they had ignored since deregulation - retail customers and small business.

With a greater range of services came a greater range of charges. Loyal customers who had stuck with the one bank for decades found their businesses wound up at the first sign of trouble. Customers who took them on in court found themselves stonewalled and bullied at every turn. Many were sent broke while the entrepreneurs who had plundered and squandered billions of dollars continued to jet around the world. The concept of relationship banking appeared to be a thing of the past.

Murray concedes that the rage directed at his industry, his organisation and himself has been brewing for years. That doesn't make it any easier to accept.

"In the late '80s you had a terrible combination of a recession and the changes that had come about because of deregulation. At the time, the Government blamed the banks and while I'm not saying they were entirely blameless, they [politicians] weren't going to take the rap," he says.

For most of the past week, he has been in serious damage-control mode, apologising for his comments but defending the bank. The criticism hurts, he concedes.

"We have a business to run and staff morale to maintain, so it isn't easy," he says. "But we must understand the concern and address it and not just arrogantly dismiss it as being wrong.

"I guess the comments I made last week showed that frustration though, because I really believe we have done a good job." Throughout the debate, customers and commentators consistently have referred to the Commonwealth Bank's social responsibility. In essence, it is an argument that the bank should be providing services that are uneconomic. Ultimately, someone has to carry the cost.

"What they are asking for is for someone to be allowed to pay for a service at less than it costs to provide," he says. "Every business has areas that are subsidised by more profitable areas and this organisation is one of them. But I have a responsibility to protect the capital of the bank for the shareholders and to run the business well so that it can contribute to the overall benefit of the community.

It is only towards the end of the conversation that Murray drops his composure.

"Look, we are the bank with twice as many outlets as any other bank, so why do we always cop it? We've stuck to our philosophy of being the people's bank. We'll open an account for anybody with any amount of money whereas a lot of other banks have restrictions."

Then the calmness returns.

"That's why it's a bit disappointing to get ticked off, although I guess I have to expect it."

© 1998 Sydney Morning Herald

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