On Wednesday, the Commonwealth Bank announced annual profits of $9.14 billion, the biggest profit of any Australian bank in history.
Australians are used to hearing about the banking sector’s absurdly high profits. Last year CBA delivered profits of $8.6 billion, while the remaining big three weren’t far behind.
Monster banking profits, it seems, are the norm.
So who exactly is benefitting from these unprecedented profits? Is it just wealthy shareholders and bank executives? Or is there a benefit for all Australians?
We broke it down.
First winner: Prunella the super member
Of the $9.14 billion profits, the vast majority – $6.8 billion – will go straight back to shareholders in the form of ‘fully franked’ dividends. The remaining $2.2 billion will be reinvested in the company.
So who are CBA’s shareholders?
Unfortunately this question is difficult to answer with any precision. Apart from BRW rich-lister Barry Lambert, its major shareholders are mostly ‘custodian banks’ – in other words, banks who hold the shares on behalf of other investors, such as superannuation funds and fund managers.
Those super funds and fund managers, meanwhile, hold those shares on behalf of their customers and members.
That means that, ultimately, one of the major owners of CBA shares is super fund members – in other words, you. CBA is the biggest company on the ASX – making up 8.8 per cent of the value of the ASX – which means every super fund in the country, pretty much without exception, owns shares in it.
That means if Prunella the super member had $100,000 in super, she would probably own more than $2000 worth of Commonwealth Bank shares. That means she just made around $55 in dividend payments.
The more you have in your super, the better you will have done, obviously. So it is certainly rich people who do the best out of this, but by no means only rich people.
Second winner: Cornelius the retiree
Like super members, the majority of self-funded or semi self-funded retirees will hold shares in the Commonwealth Bank.
Say Cornelius the 65-year-old retiree has $200,000 in his account-based pension, including $4000 in CBA shares. That means he receives around $110 in ‘fully franked’ dividends.
On top of that $110, Cornelius gets to claim a tax rebate of $47, thanks to the weird ‘franking credit’ rules, which allows a refund on the 30 per cent corporation tax already paid on the dividends to retirees.
So he has made $157 in total out of CBA’s stonking profits.
Again, a millionaire retiree benefitting from generous super tax concessions will have made a whole lot more than Cornelius. Someone on a full pension, meanwhile, gets nothing.
Third winner: Marnie the tax collector
CBA’s before-tax profit was $12.5 billion, but $3.4 billion of that went to the government in company tax. That tax goes towards the government’s spending obligations – including age pension payments.
Fourth winner: Ian the CEO
CBA’s before-profit expenses included $5.4 billion in salary payment. Divided equally between its 52,500 employees, that works out as around $110,000 per person.
But of course it is not distributed equally.
By far the biggest winner will be CBA chief executive Ian Narev. Last year, his annual salary was $8.1 million.
All bar one of the 12 senior executives in 2014 were on multi-million-dollar salaries. Of the 12, the three women were the worst paid.
The losers: the poor
Younger readers may not know this, but the Commonwealth Bank was until fairly recently owned by the government. At that time, all profits went to the government coffers. And given government spending tends most of the time to go to the least advantaged in the population, it was the poorest who benefited the most.
By privatising the bank, that system has now been reversed, with the richest getting the biggest benefits. Since its privatisation in the early 1990s, profits have soared. That’s capitalism.