Matt Comyn’s mantra on Wednesday was that Commonwealth Bank’s bumper A$9.67 billion bottom line was the latest harvest of a strategy designed for “consistent and sustainable returns”.
While the CBA boss can point truly to the performance of the core retail and business banking divisions as the successful hallmarks of his strategy, the bank’s congested portfolio of fintech investments coughed up the muddled downside.
One of the blessings of running an industry-leading bank like CBA is that it gives a CEO plenty of wriggle-room for failure so long as the core businesses are kept in running order.
For the last decade the regular earnings plunder from CBA’s retail bank has tended to blanket less impactful screw-ups in other parts of the group.
Despite the heavy spin championing CBA’s credentials as a wily investor in fintechs, several of Comyn’s big gambles in this space unravelled in the six months to the end of June.
Klarna, the struggling global buy now pay later provider, sits atop Comyn’s pile of floundering fintech bets.
Buried on page 247 of the company’s 2022 annual report were details of a $2.3 billion asset writedown – one of the largest in the bank’s history.
CBA’s investment in Klarna, which was valued at $2.7 billion a year ago, was marked down to a fair value of $408 million on June 30.
The new valuation means the bank is holding its longstanding stake in Klarna at a notional loss to the US$300 million (around A$440million) it paid for the interest in 2019 and 2020.
Klarna is turning into one of CBA’s worst investments.
Since reporting an annual loss of US$748 million in February, Klarna has embarked on a global cost cutting program to mitigate expected further operating losses this year.
However, it seems that CBA cannot come to terms with the prospect of having backed a dud horse.
Since the bank’s June 30 balance date, CBA has pumped a further A$47 million into Klarna to support its attempt to conquer the US consumer finance market.
Comyn’s renewed support for Klarna raises questions about the process by which CBA selects its fintech investments.
The CEO spent almost no time addressing the massive writedown at his investor briefing on Wednesday, nor did he clarify comments he made repeatedly in recent years that his bank had 50 per cent ‘ownership rights’ over Klarna’s Australian business.
ASIC records clearly show that CBA has no proprietorial claim to Klarna’s Australian subsidiaries.
The Klarna investment is turning into a bit of a mess for CBA on several fronts, with the bank’s shareholders left to guess at what the bank’s obligations to Klarna’s local businesses might be.
While the disclosures relating to Klarna in the notes to CBA’s 2022 financial accounts were eye-watering, there was nothing about the future of the bank’s planned cryptocurrency trading service in partnership with a controversial US platform, Gemini.
CBA, which has made an equity investment in Gemini, announced last November that it would launch a crypto trading service backed by the US company.
“We believe we can play an important role in crypto to address what’s clearly a growing customer need and provide capability, security and confidence in a crypto trading platform,” Comyn said last November.
However, the rollout stalled this year after several US regulators said they were investigating the trading platform.
In June the US Commodity Futures Trading Commission sued Gemini for alleged “false or misleading statements” in relation to the certification of a proposed Bitcoin futures product in 2017.
Risk management expert Patrick McConnell believes the CBA board failed to conduct thorough checks on Gemini before entering the partnership with the US company.
“The board clearly did little risk management because it is well known in the US that the owners of Gemini are among the largest holders of Bitcoin in the world and therefore have a conflict of interest in operating a cryptocurrency exchange,” he said.
“That sort of conflict could create potential reputational risks for CBA.”