Summary of the Report
This report is entirely focused on the Commonwealth Bank, which is one of the largest banks in Australia. It is the largest bank when market share is used as the gauge for size. The bank was established in 1911. Through good management, diversification and a good business environment, the bank has stood the test of time, and gown from strength to strength, and now it is a commanding force in the Australian banking industry. Other significant services offered by the bank include insurance, brokerage services, and property management. It is noted that in the year 2009, the bank made 4.7 billion Australian dollars. In this report, the financial strength of the bank is covered.
The report also has a section for recommendations where it encourages investors to invest in the bank due to its good market standing. Its presence in more than seven other countries including the United States, Indonesia, Fiji, the United Kingdom and New Zealand shows that the bank is assuming a powerful international presence. The threats to the bank include the global financial challenges, unstable markets and management issues. Its major competitors include Australian and New Zealand Banking Group, the Westpac Corporation, and the National Australia Bank.
Introduction and Background
The Commonwealth Bank is based in Australia. It is one of the oldest banking institutions in the country having been established in 1911 (Hand 2001, pp.23-24). The government of Australia established the bank with the first single branch in Melbourne. It is from this point that the bank was able to spread to other parts of the country. The driving force behind the establishment of this vital banking institution was to enable the government offer banking services to the people of Australia. The government also wanted to create a financial institution that would help it create a reservoir for finances in its bid to fund the running of crucial government programs such as health and education. Throughout the tumultuous 1920s and 1940s, the bank managed to uphold credible banking principles such as avoidance of unethical financial deals, a practice that saw its growth from strength to strength.
The World War I and World War II periods were difficult in terms of economic standards and the bank had its share of hurdles in running its affairs. Branches that were to be opened during these times were suspended and loans to the people were reduced. The bank never collapsed, but instead survived and grew rapidly in the post war period. Presently, it’s the largest bank in Australia in terms of the number of people who utilize its banking services. It’s one of the largest companies that are listed in the Australia stock exchange (Hand 2001, pp.43-44). This listing came with the privatization that took place in the late 1990s.
International Presence
At the time of its founding, no one envisioned the presence of the bank outside Australia. But this is what the bank has achieved. It has managed to move beyond the borders of Australia and offer its premium banking services in neighboring countries as well as distant ones. As already mentioned elsewhere in this report, the commonwealth bank is present in Indonesia, Fiji, New Zealand, the United Kingdom, and the United States. This expansion has been instrumental in the increase in the number of people the bank is serving as well as the amount of money the bank is making as profit.
Products and Services
The commonwealth Bank offers numerous services to the people of Australia as well as the customers it has in other countries. It has operations in countries such as the United States, Fiji, New Zealand, the United Kingdom as well as Australia itself.
The services include:
Loan Facilities
The Commonwealth bank has been instrumental in the growth of the Australian economy through the giving of loans to businesspeople as well as other entrepreneurs. These are the loans that have been invested in the economy and ended up making a huge contribution towards economic growth. The loans from the bank are attractive to most people due to the fact that they attract a small amount of money as interest (Hand 2001, pp.24-25). The repayment period is also not a hindrance to borrowers, meaning that they can spend some time organizing themselves to make a repayment. This loan facility has helped the bank serve a huge number of customer s whose small payments in terms of interests have made great contributions towards the rise in the profits the bank makes. It has also contributed towards the rise of the popularity of the bank in Australia as well as the other countries where it has branches (Tyndale, 2009, pp. 78-79).
There is another interesting dimension to this issue of loans. Most banks in Australia have loan facilities for their customers. But only a few of them have a variety of loan s that customers can choose from. This is one of the areas where the Commonwealth Bank has excelled. The loans are structured in such a way that people are given the opportunity to borrow in a manner that is equivalent to their ability. If someone has the ability to borrow ten million Australian dollars, the bank has a loan with such characteristics. This is a strategy that has enabled the bank to serve both poor and rich customers equally.
Financial Advice
The bank plays a key role in the distribution of crucial economic knowledge to not just the Australian government but also non governmental entities in the country. The same is also true for the countries in which the bank has branches. Through this important financial information, the government and the other agencies that get this information are able to make sound investment decisions and therefore take advantage of available economic opportunities.
Financial advice to investors means a lot because it is the only way in which they can be able to determine the type of portfolio in which to put their resources (Myers 1961, 409-422). The fact that this bank gives these services to individual customers as well has helped in the attracting and maintaining customers to the bank. This is a reason why the bank has membership or customer numbers that are higher compared to other Australian banks. This is the trend that is taking shape in the other countries that the bank has opened branches.
Insurance Services
Since the bank undertook the program of diversification, it has waded into the delicate but lucrative field of insurance. The bank has attractive insurance packages for major industries such as the auto industry. The insurance services offered by this bank are not only trusted by a huge number of Australians but also the people of other countries where the bank has introduced insurance services. Due to its huge share capital, the bank is able to outcompete most insurers in the market since it can ask for lower premiums from its clients compared to other insurance corporations. This is a benefit of the economies of scale.
Broking
Like most banks, the Commonwealth Bank deals with brokerage services as well. Companies and individuals with interest in the purchase and selling of shares that are traded in the stock market can either buy or sell through the agents employed by the commonwealth bank. Since the bank is already established in the Australian business circles, it is not surprising that the brokerage business is doing well. Like in its other investment portfolios, the bank has the ability to offer attractive packages to individuals and companies that use its brokerage services. The attractive package is a function of a huge capital base that leads to more profits and therefore less need for high prices for its services.
Investment
The bank has extensive interests in investment. The largest area of investment where the bank has interest is real estate. It’s however expanding to other forms of investment such as transport and construction. Other form of investment that the bank engages in is financial investment in the stock markets. It does this on behalf of individuals and corporations as it tries to make profits for them.
Other services/Products
The bank also engages in individual and corporate banking as well as property management.
Management
Management is a major area for business for the Commonwealth bank. Due to its superior leadership training ability, the bank is able to produce the best managers who are utilized in the management of portfolios for both individuals and corporations. The process through which this takes place is that an individual or an organization acquires a property which can be real estate or shares in a company and then reaches out to the bank for management. The bank puts its trained personnel in place to manage the property on behalf of the customer. This business interest has assisted in the boosting of the profits made by the bank. This is one of the undertakings that separate Commonwealth bank from other banks in Australia (Hand 2001, pp.45-47).
Individual Banking
The initial purpose that drove the government of 1911 into opening the commonwealth bank is offering banking services to the people of Australia. To this day, this is one of the key areas of banking that the bank handles with utmost care. Ordinary Australians who want to keep their money in a safe place as they go about their daily lives turn to the Commonwealth bank for this important service (Maude 2006, pp. 4-5). The bank has various accounts that are designed for various needs. For example, individuals who engage in business and therefore need quick cash from time to time are given a special account which is described as the current account. The account characteristics include the requirement of a small minimum balance, the ability to withdraw several times a day as well as ATM facilities.
Corporate Banking
Apart from individual banking services, the Commonwealth bank offers corporate banking services to organizations that are in need of a good bank to hold their money. The ability to make interest by banking with this bank has made it a popular bank among organizations.
ATM Services and Credit Cards
The Commonwealth bank has the highest number of ATMs in Australia. This is a convenience facility that has made banking easy for its customers. The fact that the bank has many branches has enabled the people of Australia to make use of the ATMs to the maximum. The ATMs have been established in urban areas as well as rural areas. This means that even small scale investors such as farmers as well as those who own small businesses can access ATM services too. Thus the need to travel long distances to access money is eliminated. There is no doubt that the ATM services have assisted in customer attraction and retention for the bank. Credit card services are also offered by the bank. This has added to the convenience profile for the banking services of Commonwealth bank.
Returns
When a company has been in the market for a long time, there is a reason as to why it has not died. This is due to the fact that the business that the organization or company is engaged in is profitable. Given that the Commonwealth Bank has been around since 1911, it simply means that the bank has been making profits that have managed to sustain it throughout these many years. In 2009 financial year, the bank made 4.7 billion Australian Dollars (Hand 2001, pp.55-56). The 2010 financial year has a profit of more than 5 billion Australian dollars.
What do these profits show?
The simple message that is present in these returns is that the company is making profits. Profits speak volumes about the ability of a company. For instance, when a company makes profits, it means that the leadership is good. It also means that the investment that the organization engages in is sound. It also means that the bank is a hot investment destination for most investors. In addition to that, profits indicate that the bank has the ability to attract a sufficient number of clients, since clients are the source of the investment that generates the profits. All these elements are present in the Commonwealth Bank to a reasonable degree (Maude 2006, pp.34-35).
Main Threats
The greatest threats the bank faces include the effects of the global financial crisis and an unstable financial system. There is also the threat of uncontrolled investment through expansion, which can lead to a sudden collapse. This is especially possible if new branches are opened in places where economic stability is a challenge. Its main competitors are the Australian and New Zealand Banking Group, the Westpac Corporation, and the National Australia Bank (Hand 2001, pp.56-57).
Recommendations as To Whether Someone Should Invest In This Bank
Given the turbulent economic times in which the globe is immersed, the following recommendations will be helpful for any individual who may be interested in investing in this bank. First, the bank has shown the ability to sustain and even improve its expansion program. This has further increased its profits, which has made it easier for the bank to lower the cost of its services. The end result is the increase in clientele and a further rise in gains. This expansion has been done cautiously so as to avoid unsuitable markets. This is a point that shows that an investor can put his or her money in this company. Secondly, the bank has ensured that leadership is kept at its best at all times. The survival of a corporation as large as this bank is heavily depended on its leadership. Bad leadership can easily bring it down. With this type of tradition, an investor can rest assured that his or her investment is safe. Lastly, the bank has diversified its portfolio, a move that minimizes uncompensated losses. This is one characteristic of a good company.
Conclusion
The Commonwealth bank was established in 1911. It was privatized in 1996 and it is now present in more than five countries. It’s the largest bank in terms of membership in Australia and its annual profits are attractive. In the year 2009, it made a profit of 4.7 billion Australian dollars. It has diversified its investment to a large degree, and it has interests in insurance, corporate banking, broking, management of property, and financial services. The good leadership that the bank has coupled with a long history of financial strength has given the bank a solid base on which it conducts its banking services. With each new market, the bank moves in to establish the original Australian spirit of sound services. This is shown by the success the braches in other countries have achieved. It’s an organization that is fit to invest in.
References
Hand, Graham, (2001). Naked Among Cannibals: What Really Happens Inside Australian Banks, New York: Allen & Unwin.
Maude, David. (2006). MGlobal Private Banking and Wealth Management: The New Realities, New York: Wiley.
Myers, Margaret G. (September 1961). “The Control of Consumer Credit in Australia“. Journal of Finance (1961) 16:3, 409–422.
Tyndale, Walter, (2009). Fundamentals of Offshore Banking: How To Open Accounts Almost Anywhere., Web.