Business bank receives special attention at CBA
Among the motivations at Commonwealth Bank for the decision to hive off business banking from institutional banking, one worth noting is management self interest.CBA did not offer much rationale for the decision in the announcement of the separation yesterday; one motive was the "increasing scale, diversity and importance of these businesses to the group's overall business mix."The decision reverses the amalgamation of business banking and institutional banking to form the division known as Premium Business Services in the early 2000s.The new Business and Corporate division will include Local Business Banking, Corporate Financial Services, Agribusiness and Private Client Services.Westpac made a similar decision last year to split business banking from institutional after opting to merge them some years before.Ian Narev, who joined the bank from McKinsey and Company in Auckland in the first half of 2007 to run the bank's strategy arm, will manage Business and Corporate. It will be Narev's first operational job in banking. The selection of Narev is being seen as an opportunity for him to establish his credentials as a prospective chief executive of the bank.There was no announcement of an executive to manage Institutional Banking and Markets, which suggests the bank is still negotiating with its preferred candidate, and must also mean that Ian Saines, who's acted in the job since Stuart Grimshaw quit to work in funds management in late 2008, missed out on a permanent appointment to the post.The business climate may be forcing CBA to reconsider aspects of its business model, including the escalating bad debt problems that are more apparent in the institutional bank but that must also be emerging in the business and corporate bank.Another driver of the decision may be the structure of the bonus arrangements for upper management, notably the $11.6 million bonus (to be paid in shares) to the bank's managing director, Ralph Norris, in the second half of 2011 if certain performance hurdles are met.One hurdle is simply that CBA's profit growth exceed that of its peers.The larger hurdle is that CBA's ranking on "customer satisfaction" measures on three external surveys must rise from fourth to first.Other than the profit gateway, the performance of some key businesses including institutional banking, the bank's few offshore investments and parts of wealth management, is not relevant to Norris' eligibility for his bonus.In business banking the relevant survey is the TNS Business Finance Monitor where 77 per cent of CBA customers say they are very satisfied or fairly satisfied with the quality of the bank's service.CBA has been catching up on this measure over the last year (and is now ranked marginally better than NAB by TNS). The lead bank on this measure is ANZ, where 83 per cent of customers say they are satisfied.So one way Narev can deliver for Norris is to work harder to push CBA to number one and keep it there.