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Australia's CBA vows reputational rebuild as scandal taints record profit
[SYDNEY] Commonwealth Bank of Australia conceded on Wednesday its reputation is on the line over money-laundering and terror financing allegations, as it posted its eighth straight record cash profit under the shadow of massive potential penalties.
Australia's mortgage leader flagged the sale of its life insurance business and hiked dividends, sending its shares sharply higher, but any good news was clouded by the ongoing fallout of bombshell criminal allegations.
Chairman Catherine Livingstone said four directors had been tasked with overseeing the bank's response to a Federal Court lawsuit alleging criminal syndicates had laundered millions of dollars through CBA accounts over several years.
The claims, levelled last week by the government's financial intelligence agency Austrac, have wiped billions of dollars from CBA's market value and overshadowed its better-than-expected 4.6 per cent rise in annual profit to A$9.88 billion (S$10.66 billion). "The board acknowledges the significance of the allegations ... and that this issue impacts the reputation not only of the bank but of the industry more broadly," Livingstone said in a statement accompanying the earnings release.
The comments from the chairwoman of Australia's second-biggest lender struck a different tone to those of CEO Ian Narev, who has blamed most of the breaches on a software glitch.
CBA's board said on Tuesday it had cut short-term bonuses to zero for Narev and other top executives for the year to June 30, 2017, citing the "collective accountability of senior management for the overall reputation of the group".
But Ms Livingstone went further on Wednesday amid mounting calls for a sweeping judicial inquiry into Australia's banking sector, naming the board sub-committee and promising to rebuild public trust.
The board would "take an active role in addressing any further management accountability", she said, noting that there was "no reason to believe that the allegations arose from deliberate or unethical behaviour, or any commercial motive".
CBA said it was not possible to reliably estimate the possible financial impact on the group, although technically it could face billions of dollars in penalties.
The regulator accuses CBA of "systemic" failings to spot thousands of illegal transactions, some of which allegedly involved drug syndicates and terror financiers.
CBA shares rose 1.07 per cent to A$81.5 after the profit release, out-pacing the broader market's 0.33 per cent rise.
The result was "slightly ahead of expectations with very few surprises, likely just as CBA would like it," UBS banking analyst Jonathan Mott said.
CBA said it was in talks to sell its life insurance business, although it did not name any potential buyer and added that the outcome of the negotiations was uncertain.
Growth in home lending and a drop in expenses related to bad debts helped CBA pip average analyst forecasts for a A$9.83 billion profit for the 12 months to June 30.
Net interest margin, the difference between interest costs and interest earned, was unchanged in the second half at 2.11 per cent, while loan impairment expenses dropped about 13 per cent.
CBA declared a fully-franked dividend of A$2.30 per share, for a yearly final dividend of US$4.29 per share, up 2.1 per cent.
Corporate operating expenses jumped 20 per cent due to higher costs of technology and safeguarding information, reporting requirements and anti-money laundering measures.
Ms Livingstone said the bank had made progress in beefing up its anti-money-laundering programmes since late 2015, including recruiting more than 50 compliance staff.
The Austrac allegations are the latest headache for Australia's major lenders, which have been embroiled in a series of scandals that have fuelled calls for the industry's dirty laundry to be aired in a judicial inquiry known as a Royal Commission.
They are also facing higher taxes as well as regulatory pressure to boost capital and slow lending to speculative property investors.