Commonwealth Bank defies trends set by competitors

In yet another act of defiance against the trends set by its competitors, Commonwealth Bank (ASX: CBA) has in fact added 600 full time positions in 2013, preferring to preserve culture rather than save costs in the short term.

On Wednesday, the bank announced a profit of $7.8 billion – significantly higher than any amount ever reported by an Australian bank. It is expected that rivals Westpac (ASX: WBC), ANZ (ASX: ANZ) and NAB (ASX: NAB) will also deliver enormous profits as they too have benefited from a low interest-rate environment.

However, one of the key differences between CBA and its rivals has been the way in which it has cut costs to increase profits. For instance, whilst CBA has promised to keep jobs onshore – to protect staff as well as maintain a high level of customer service – thousands of jobs from the remainder of the finance sector have been lost to overseas workers in the last year.

CBA’s CEO Ian Narev said “My experience is that, that kind of cost-cutting does not get sustained. The last thing you want… is to start slashing and burning, get a short-term cost benefit only to find that 18 months or two years later, that all the cost is back and you have destroyed the culture.”

Foolish takeaway

A strong internal culture is ideal for any company, and it is certainly appealing for potential investors. After all, satisfied employees are more likely to deliver a better service to customers, which would increase the likelihood of retaining those customers.

Based on this merit, Commonwealth Bank is making the right moves, however, at today’s price it would be unwise to purchase shares. Whilst the bank delivered a record profit, it will be extremely difficult to maintain or beat that record in the next year. An analyst from Deutsche Bank said “CBA’s financial year 2014 earnings growth is likely to be a victim of own financial year 2013 success.” As such, it is highly unlikely that the bank – or any of its rivals, for that matter – will deliver market beating returns in the long-run.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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