How much were CBA shares worth when floated?

Banking is seen as a key driver of economic growth anywhere in the world. The banking system is to economy as the circulation system is to human body. Banks lend money – either to companies or to individuals. In both cases, the credit line helps in economic growth, stimulating demand in the economy.

For instance, a company takes a loan of AU$100 million from say XYZ Bank (fictitious name). The company, that produces cars, uses this to enhance production. To ramp up the production, the company hires more people. These people will end up spending the additional money they earn at the company, thus enhancing demand. Also, since the production is increased, there are now more economies of scale. The car prices would automatically come down, getting affordable for more and more people. It again stimulates the demand.

Now, imagine an individual ABC who takes the loan from the same XYZ Bank. He takes it to buy a new home, thus further increasing demand. And this increase in demand has a multiplier effect with upward mobility, that ultimately leads to economic growth.

So, in the above story, the customer remained the king of demand-driven growth. However, the kingmaker was the bank.

There may be tens and thousands of banks across the globe, and some are huge – when we look at their asset base. In 2020, global rating agency S&P published a Global Market Intelligence report of the 100 largest banks in the world. Of the top five, as usual, four were Chinese – with only JP Morgan Chase and Co (NYSE: JPM) from the US making the cut. On the 45th slot in the list, is Australia’s largest bank – Commonwealth Bank of Australia (ASX:CBA) -- with the asset size of AU$1.06 billion, as on date. With primary focus on the retail lending – especially home loans -- the loan book of the bank currently stands at AU$792.1 billion.

Backed by the strong financial performance, the bank’s shares are currently trading at a life high of AU$105.75 per share. Over the past decade, the shares of the bank have grown by 114%, which translates into a compounded annual growth rate of 8% every year for a decade which saw the world crawling out of a financial meltdown, an economic slowdown, a once-in-hundred-year pandemic and a recession.

This makes us inquisitive about the beginnings of the Commonwealth Bank, and how its share price has grown since.

When and at what rate was CBA listed?

To begin with, the bank was a government-owned entity, until it was converted into a public company with share capital on 17 April 1991.  Thereafter, as the government drew down on its holdings, the bank was privatised in three stages. In middle of 1991, the bank made an offer of its newly issued shares to the public. At this stage, the government divested 30% of its stake from the bank, represented by 230 million shares. The shares were issued on 12 September 1991 at an issue price of AU$5.40 – which could be called as its floating price. For the early investors, who have held the shares till now, the bank has lived up to their expectations – giving them 10% compounded return every year for three decades during which the world saw three recessions.

When did the government further divest from the bank?

Again, in October 1993, the government moved to truncate its stake in the bank to 50.4%. This would mean parting with 178 million shares – which were finally listed on 1 November 1993. The bank and the government followed a dual issue price this time -- AU$9.35 for retail investors and AU$9.60 for institutional investors. The compounded annual return in this case is almost 100 basis points lower – 9% for the retail shareholder and 8.9% for the institutional ones.

The remaining 50.4% stake of the government was offered to public in 1996.

In July 1996, the government made a public offer of its remaining 50.4% shareholding in the bank.  As part of the connected clauses of this offer, the bank agreed to buy back 100 million shares from the government.  The buyback price was fixed at AU$10.01 per share – leading to a payout worth AU$1 billion being paid to the government from the bank.  The public offer and the buyback were completed on 22 July 1996.  The government offered 399 million shares to the public – for which the investors paid AU$6 per share on spot, with the remaining instalment of AU$4.45 to be paid one and a half year later.  Investors were entitled to three dividends payouts in this one-and-a-half-years.

Does the bank have DRP in place?

Interestingly, the dividend that an investor gets from CBA, can be reinvested back into the bank as the bank had dividend reinvestment plan (DRP) in the place. The DRP allows shareholders to reinvest all or part of any dividend paid on their shares into additional shares instead of receiving the dividend in cash.

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