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SENATE ECONOMICS REFERENCES COMMITTEE
Witnesses Mr Ian Corfield Chief Executive, Retail Bank of Western Australia – Mr John Earle Sutton, Managing Director, Bank of Western Australia.
Senator JOYCE—Does Bankwest have a treasury desk that is separate from the
Commonwealth Bank’s treasury desk?
Mr Sutton—We still have elements of a treasury desk and under the approvals given by
APRA we do outsource a portion of our wholesale funding management to the Commonwealth
Bank.
Senator JOYCE—So basically—and I am being quite frank here—the treasury desk is now
predominantly the Commonwealth Bank’s treasury desk. If I ring up to lock in a rate, who would
I speak to? Would I speak to the Commonwealth Bank’s treasury desk or a combination of the
Commonwealth and Bankwest treasury desks? Is there an actual separate treasury department
that does that or is it now encompassed by the Commonwealth Bank?
Mr Sutton—Sorry, Senator; I misunderstood your question. Are you asking in regard to
customer dealings with a treasury desk for foreign exchange or are you asking about—
Senator JOYCE—Both. Just starting with the most fundamental role, if I get myself a loan
and I want to lock in the rate and the business development manager rings up to lock in the rate,
who would he talk to? Would he talk to the Bankwest treasury desk, as it was before? Would he
talk to a combination of the Bankwest and CBA treasury departments? Or would he just talk to
the Commonwealth Bank? Do you still have a treasury department like you did before?
Mr Sutton—If you are a customer and you ring up to get a business loan, a business rate or a
home mortgage rate, you would talk to someone at Bankwest.
Senator JOYCE—Right. Is the securities department now a combination of the Bankwest
and CBA securities departments or is it still the Bankwest securities department?
Mr Sutton—Are you talking in terms of mortgage securities?
Senator JOYCE—Yes.
Mr Sutton—Then it is Bankwest.
Senator JOYCE—What roles have been combined with the Commonwealth Bank now?
Mr Sutton—Very few roles have been rolled into the Commonwealth Bank. We have an
outsourcing agreement with the Commonwealth Bank for the management of our wholesale
funding.
Senator JOYCE—So what is the role of the Commonwealth Bank? Is it basically as a
shareholder wanting a return on its shares or is it an actual owner? Is there still a dividend that is
supplied by Bankwest? Does Bankwest still exist as a corporation delivering a dividend back to
the Commonwealth Bank or is it just a banner?
Mr Sutton—No. Bankwest has its own banking licence. It is regulated by APRA. The
Commonwealth Bank acquired the legal entity. The way the structure works is that I answer to
the Bankwest board of directors. There is one shareholder director on that board.
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Senator JOYCE—So if the Commonwealth Bank wanted to in the future it would be possible
to just sell off Bankwest to another entity without too much problem. If they wanted to they
could sell it to somebody else.
Mr Sutton—I suppose that is possible, but we want to ensure that Bankwest is a very
successful organisation so they do not want to sell us.
Senator JOYCE—Of course. I imagine that at the forefront of your mind is that you want to
keep your job. With the partisan nature of the state you are in especially, Western Australia, was
there any movement of the customer base because it was concerned about Bankwest basically
being run by an eastern stater?
Mr Sutton—As a person who arrived from the eastern states on 5 January, I would like to say
that I have been warmly welcomed and embraced by the WA community. Initially when the
acquisition was announced in October there was a dip in customer satisfaction levels, but
Bankwest has actually grown its customer numbers in the eastern states and also in Western
Australia.
Senator JOYCE—Whereabouts did you come from?
Mr Sutton—In my previous role at the Commonwealth Bank I was head of regional and rural
banking. I have been with the Commonwealth Bank for 15 years.
Senator JOYCE—So you were basically parachuted in by the Commonwealth Bank. Were
there other key management roles from the Commonwealth Bank placed into Bankwest? I
cannot see any problem if that is the case. That would make sense. They did buy it.
Mr Sutton—It is a very deliberate strategy to ensure that we have the right people in the right
jobs. There were two additional people who came across from the Commonwealth Bank—Peter
Deans, the chief risk officer, and Jason Clifton, the CFO. We have kept the majority of the
Bankwest management team because they have done a great job.
Senator JOYCE—Do you compete against the Commonwealth Bank for business?
Mr Sutton—Yes, we do. I am quite proud to say that.
Senator JOYCE—Is this on all levels or deals? Is there a high commercial end of the
market—on higher deals—that does not? For instance. it may be a deal of over—I do not know;
it has been a while since I was in banking—say, $50 million. Does that go to the same credit
bureau as a deal that is operated by Bankwest?
Mr Sutton—The way we are operating Bankwest at the moment is that there are certain
segments of the market where Bankwest actively competes and there are other segments of the
market where we just cannot possibly compete. An example of that is in the very large company
listed space. For example, if a large listed company came to Bankwest and said, ‘Could we
borrow $300 million or $200 million,’ we would not have the expertise or the risk appetite to
play in that large company listed space. We want to be very competitive in retail banking and we
want to be very competitive in business banking. The reason we cannot play in the very large
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listed company space is that the balance sheet Bankwest has does not allow us to do that. Nor do
we have the expertise to do that.
Senator JOYCE—Why don’t you? Now that you are owned by the Commonwealth Bank,
surely the Commonwealth Bank has a duty of stewardship to reduce costs and get the best return
to its shareholders. Wouldn’t it surely get that by closing down a duplication of services where
Bankwest is proximate to CBA branches, and then amalgamate the treasury department,
amalgamate the securities department and get rid of half of your directors because they are
superfluous and just go back to a core Commonwealth Bank business?
Mr Sutton—That is a great question. Everyone asks that question but I will go back to some
comments that I made. If you look at any of the previous acquisitions that have been made over
the last 15 or 20 years you find that there’s been considerable value destroyed by absolutely
doing just that. I can imagine in the state of Western Australia or even in your state, Senator, that
if somebody went and managed to pull down all the Bankwest signs and replaced them with
Commonwealth Bank signs the customers would vote with their feet and leave in droves. That is
what has happened in the past.
Senator JOYCE—But where would they go in Western Australia now if that was the case?
There is nowhere else for them to go.
Mr Sutton—They may want to go to another institution like ANZ or somewhere else. We are
absolutely committed to maintaining the brand presence of Bankwest.
Senator JOYCE—I always say there are only three states in Australia: there is Western
Australia, Queensland and inebriated. What sort of guarantee can you possibly give? If I was in
the corporate structure of the Commonwealth Bank I would be looking at progressing that
portfolio across to a Commonwealth Bank banner, because it is in my interest to reduce costs. Is
there any guarantee in the long-term future that Bankwest will survive as a name? Right down to
signage; why am I going to create two lots of signage when I can cut my costs by producing
one? Why would I have a Bankwest across the road from a Commonwealth Bank creating
competition, forcing down my margins, increasing my labour costs and increasing my
overheads? How can that be worthwhile to my shareholders?
Mr Corfield—I think it comes back to your view of the customer. If you thought that all
customers would be attracted to your one brand—the Commonwealth Bank brand—then that
might be the right strategy to take. But having looked at it very closely what we have found is
that there are a good chunk of customers who are attracted to Bankwest for completely different
reasons to the reasons that customers go to the CBA. So therefore if you took all those signs
down, if you closed the brand out and shut all of the branches you would actually lose those
customers. They would not simply migrate to the core brand. Therefore you would have
destroyed the value that you had bought in the acquisition.
I guess John and I cannot give anyone a cast iron guarantee of anything but we can say that
there is very considerable value in the Bankwest brand. We are absolutely committed to those
customers and that is why we are going to continue to run it as an independent brand and
business.
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Senator JOYCE—The reason why I asked that question is that I am thinking of the
transformation process where we got QIDC, Metway Bank and Suncorp. Of course it was all
beautiful because QIDC disappeared and it became Suncorp-Metway. Ultimately, in the end,
everybody just ended up as part of Suncorp. All these things start off saying, ‘We’re going to
look after you all,’ but where they finish off is, ‘We’re going to cut costs,’ because that is what
the corporate structure demands. In fact you are in breach of your duty to your shareholders if
you do anything else but that. So my question is: apart from the obvious partisan nature of
Western Australia, which is one of the strengths of Western Australia and one of the great things
about it, apart from that sort of partisan cultural belief of Western Australia, there is really
nothing stopping Bankwest from disappearing.
Mr Sutton—The business model we have put in place actually recognises the strength of WA.
I go back to the initial reasoning why the CBA was so attracted to Bankwest—that is, in Western
Australia CBA did not have a great presence and Bankwest is a great iconic brand. That was
very, very attractive to the CBA; and we want to actually maintain that brand. In the eastern
states Bankwest has been really successful at creating a challenger brand, which has a materially
different feel about it to what the other four majors do. We want to protect that and actually
continue down that path over time. So I think from a Bankwest perspective, and I cannot stress
this enough, we absolutely want to maintain the brand in WA—and we also want to maintain the
challenger brand that has been created in the eastern states and continue to grow that customer
base. There is no guarantee that in the next 20, 30 or 40 years any brand will actually stay
around.
Senator JOYCE—How many banks do you think Australia should have?
Mr Corfield—As many as its customers demand. The reality is that the biggest protection for
any brand is its customers. I think in Bankwest we have an iconic brand in WA and a highly
respected brand on the east coast, and I think frankly that is the biggest protection for this
business going forward.
Senator JOYCE—Do you believe there is ease of entry into the banking market? If I, in a
flight of fancy, want to set up a bank, I have not got a snowflake’s chance in hell of doing it, do
I? It is a highly restricted market—that is one of the reasons why it is successful. Entry into the
market is extremely difficult.
Mr Sutton—I think those are questions that you have to actually put to regulators and to
government. What I will say is that there have been some recent press articles over the last few
days talking about the strength of the Australian financial system when you compare it to the rest
of the world. I think it is really incumbent upon Australia to have a strong, vibrant banking
sector, and I think that is what we have at the moment.
Senator JOYCE—That is a wonderful statement but how do we keep a vibrant market when
entry to the market is quite evidently difficult. If it was not, we would see new brands and new
banks emerging domestically. The only banks we ever seem to be able to rely on to emerge into
the market are overseas banks. So their growth benefits some place overseas. Our own capacity
as a domestic economy to grow banks is just not there. We just do not see it. So should we not
inherently be highly circumspect about further mergers in our domestic banking structure
because we have proven, through our own legislative overheads or because of other reasons—or
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maybe it is because of the practices of the banks themselves—that we are not able to grow our
own domestic banks?
Mr Sutton—From a Bankwest perspective we are looking to continue to grow our business.
We have been growing our customer numbers. We will look to do so on the eastern seaboard and
over here in Western Australia.
Mr Corfield—I think it is worth adding that 12 months ago there were lots of challenger
brands in the market place. A number of those have struggled as a result of the funding
difficulties over the last 12 months but the reality is, and we are preparing for this reality, that a
lot of brands will come back into the market as soon as the funding environment lifts. So think it
is right that there are regulatory protections that mean that not everyone can jump into the
marketplace, but equally there are plenty of businesses that do.
Senator JOYCE—Who does the assessment when your credit rating is assessed? Is it
Standard and Poor’s?
Mr Sutton—We are a wholly owned subsidiary of the Commonwealth Bank, and obviously
Standard and Poor’s and the other rating agencies do their due diligence on the Commonwealth
Bank group, of which Bankwest is a part.
Senator JOYCE—So as far as your rating agency is concerned you are the Commonwealth
Bank?
Mr Sutton—We enjoy a AA credit rating.
Senator JOYCE—Does that mean they actually do an assessment of Bankwest? Or do they
do an assessment of the Commonwealth Bank?
Mr Sutton—We recently met with Moody’s. That was part of their overall assessment of the
Commonwealth Bank.
Senator JOYCE—So as far as Moody’s are concerned you are the Commonwealth Bank.
Why should anybody else consider you to be anything but the Commonwealth Bank?
Mr Corfield—Just to be clear, they give a separate rating to Bankwest. Of course in doing
that they would look very closely at what the Commonwealth Bank group’s position is. But they
are coming and speaking specifically to Bankwest.
Senator JOYCE—But you are a 100 per cent owned entity of the Commonwealth Bank.
Mr Corfield—Absolutely, in exactly the same way that we were a 100 per cent owned entity
of HBOS and therefore our rating at that point was linked to what the rating of HBOS was.
CHAIR—You said that you had a AA rating. Does that mean that in your own stead as
Bankwest you have a AA rating?
Mr Sutton—Yes.
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Senator JOYCE—HBOS though is not the Commonwealth Bank. It is a separate bank. But
now you are the Commonwealth Bank and so really the banking market in Australia is shrinking.
Mr Sutton—You could look at it that way, but the way Bankwest is set up and running at the
moment it is vigorously competing in that market for customers. We actually have different
products with different prices to those of the Commonwealth Bank.
Senator JOYCE—Who develops your pricing matrix and where is that developed?
Mr Sutton—As I said in my opening remarks, Bankwest has its own pricing committee for its
own products—mortgages, business loans, car loans, et cetera—and those pricing decisions are
made completely independently of the Commonwealth Bank.
Senator JOYCE—Who is on that committee?
Mr Sutton—I chair that committee and it is made up of my executive team.
Senator JOYCE—How many are there on that committee?
Mr Sutton—It is me; Mr Corfield, who is here; Mr Paul Clark, the head of the business bank;
and the CFO.
Senator JOYCE—How many of those people came from the Commonwealth Bank? I know
that you did, but how many of the others did?
Mr Sutton—Me and the CFO. Again, let me reassure you that I do not have Ralph Norris
ringing me every second day or once a week, or anyone from the Commonwealth Bank, telling
me how to set our prices.
Senator JOYCE—I do not imagine you would. He might start ringing you though if things
come unstuck. What is the other regional bank in Western Australia? Is there any other bank
competing with Bankwest in Western Australia now?
Mr Sutton—Do you mean a regional bank?
Senator JOYCE—We have the Bank of Queensland and Suncorp in Queensland. Apart from
Bankwest, is there another Western Australian based bank?
Mr Corfield—There are a number of very strong credit unions in Western Australia, which
provide competition, and also obviously the other major banks are very serious competitors.
Mr Sutton—We also have the Bank of Queensland and Bendigo Bank here.
Senator JOYCE—So which is the biggest credit union in Western Australia? I am asking
about Western Australian born and bred credit unions. Which one is the biggest?
Mr Sutton—I do not know the answer to that question.
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Senator JOYCE—Can you name one that pops into your head?
Mr Corfield—The Police and Nurses Credit Society is down the street from us in St George’s
Terrace. They provide very strong competition.
Senator JOYCE—Would you have any idea of what the size of their book is in proportion to
yours? Would it be half the size?
Mr Sutton—No, I do not.
Mr Corfield—We take the view, and I guess this is the approach of the group as a whole, that
if Bankwest grows then net on net the CBA group is benefiting by bringing more customers to
the group. So we focus on our bank and trying to grow our bank rather than worrying about what
the competition do.
CHAIR—Senator Joyce, I think we will have to make this the last question because we have
another hearing for another reference and we are running out of time.
Senator JOYCE—Okay, what I am getting at is that for all intents and purposes we are
talking about different brands of hamburgers from the same shop. They might have different
names but the ultimate source of revenue and source of profit all comes back to the same place.
In your career path, would you ever envisage heading back into the internal corporate structure
of the Commonwealth Bank?
Mr Sutton—I am here to make sure that Bankwest grows and thrives as a business and I am
very much looking forward to ensuring that Bankwest is a successful business. Who knows
where our career paths will take us, Senator.
Senator JOYCE—There is a marvellous mission statement. Thank you very much for that.
CHAIR—I thank the witnesses for appearing. That concludes this hearing.
Committee adjourned at 10.10 am