The Australian Financial Review

Big Four fail customer innovation test

Published : 30 Nov 2011



I read with interest Chanticleer’s commentary on the rumours and counter rumours on the demise of Commonwealth Bank of Australia’s equity capital market (ECM) business (“Big four lack reach in ECM”, November 24).


This is notwithstanding [Group executive, institutional banking and markets] Ian Saines’ comment that CBA would rank No. 1 in Australia in the first six months of 2011 with capital raised of about $8 billion.

As Chanticleer says, 95 per cent of the capital raised was debt, which is exactly what CBA and the other three majors have been doing for roughly the last 170 years. The challenge for the four majors is to be providers of valuable innovative intellectual capital. The real value to Australian CEOs is not the price of debt, but rather the value of their equity. The simple fact is Australian banks cannot offer their customer innovation because they sell commodities.

In all other international markets the major trading banks dominate the equity advice and ECM league tables. In countries such as Canada, they are very adept at their traditional commercial banking business, but they also go the extra mile and provide cutting edge ECM services to their best clients.

So why is it taking so long for the big four to understand that innovation is not delivered through improving efficiency in providing the delivery of commodity products into the market, but rather through the delivery of smart ideas and execution capability to help drive the equity value of their customers.

The answer is simple – the total financial services revenue pool is approximately $100 billion in any given year. Total ECM and advisory revenues represent less than 5 per cent of the total pool.

The reality is that the banks are very profitable trading across 95 per cent of the financial market and don’t need the aggravation to take on additional reputation risk with an ECM business.

The existing machine pays their exorbitant salaries and bonuses and there is no catalyst to genuinely becoming more relevant to their customers the serve?


Arthur Psaltis Sydney NSW

The Australian Financial Review