Commonwealth Bank profits slump as compliance bill surges by $1bn | News


Profits at Australia’s biggest bank, the Commonwealth, have slumped by 8.1% after the bank laid out an extra $1bn to compensate customers it has ripped off.

The bank, which was at the centre of a series of financial scandals that helped prompt last year’s Hayne royal commission, has also pledged to shut one of its most troubled divisions, advice group Financial Wisdom, next year.

“The royal commission wreaked havoc on the CBA result,” leading bank analyst Brett Le Mesurier, of stockbroker Shaw and Partners, said.

The bank’s $8.57bn profit, which was also driven by falls in income and higher costs across its different businesses, was below market expectations, sending its share price down about 1% on Wednesday.

“This is a soft result,” UBS analyst Jonathan Mott said in a note to clients.

He said the market would now expect lower profits from the bank in the future.

CBA’s history of misconduct has resulted in a series of investigations and lawsuits that have increased its regulatory and compliance costs – including a program to improve its governance and culture ordered by the prudential regulator, which the bank has been warned is “at serious risk of not delivering” if the bank does not resource it properly.

Chief executive Matt Comyn, who replaced Ian Narev in April last year, said the bank was juggling a number of “regulatory and risk projects”.

“But we have already started work on making sure that we can both maintain the momentum of the program and also retain the on-track status [of the project].”

Announcing the results on Wednesday morning, chairwoman Catherine Livingstone also said that the bank planned to stop financing thermal coal mining and electricity generation by 2030, “subject to Australia having a secure energy platform”.

Net profit for the year to the end of June fell 8.1% to about $8.57bn, the second year running that the cost of addressing past misbehaviour has eaten into earnings.

Using the cash measure preferred by the banking sector, profit fell 4.7% to $8.5bn.

“That cash net profit after tax is of course subdued and it’s been impacted by higher remediation costs of almost $1 billion during the course of the year, as well as elevated risk and compliance spend,” chief executive Matt Comyn said.

He said the bank was trying to simplify its structure by selling troubled areas, including wealth management and insurance, and returning to its core business of borrowing and lending money.

“We’re focused on changing our culture and the way we serve our customers,” he said.

Despite its profit woes, CBA said it would maintain dividends paid to shareholders, totalling $4.31 per share for the year.

CBA said it would close Financial Wisdom, part of a financial planning group where it is spending more than $530m compensating clients hurt by shoddy advice.

The bank expects it will have to refund about a quarter of the fees charged by financial planners who worked for this division.

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CBA is also continuing to deal with the consequences of breaching anti-money laundering and counter-terrorism finance laws.

In 2017, financial intelligence agency the Australian Transaction Reports and Analysis Centre took CBA to court alleging more 53,000 breaches of AML-CTF law, some of which related to criminal syndicates or people with links to terrorism.

Last year, the CBA settled with Austrac by paying $700m – $145m of which it said it has since clawed back through an insurance claim.

However, an Australian Securities and Investments Commission investigation into whether the company misled the stock exchange over the scandal continues.

And in its annual report the bank said Asic was “also investigating, among other things, whether the officers and directors at CBA complied with other specific obligations under the Corporations Act.

Comyn, who until he became CEO was head of the retail bank division, where many of the Austrac breaches occurred, said he did not know which executives were under investigation or which sections of the law Asic suspected might have been broken.

Separately, Asic is also investigating CBA over allegations raised during the royal commission.

The bank also admitted it missed a deadline set by Asic to certify it had remediated victims of another of its financial advice arms, Commonwealth Financial Planning.

Under a court-enforceable undertaking, CBA was supposed to provide the attestation in January. It did not do so until 30 May.

The bank has also struggled to bring in the recommendations of a scathing review of its culture and governance, commissioned by the prudential regulator and released last year.

In a 30 June report to the bank, IBM subsidiary Promontory said the reform program “continues to face significant risks and challenges in delivering effective and sustainable outcomes”.

Getting adequate resources would be “pivotal”, Promontory said.

“It has been an ongoing challenge from the start of the program.

“The challenge has intensified in the context of competing priorities which have emerged over the last 12 months.”

Dealing with the regulators and the royal commission cost it $155m for the year, the bank said.

Le Mesurier said CBA’s costly history of misconduct stretched back “at least a decade” to a time when the bank decided to expand from its traditional business into wealth management.

“It shows there’s no way to escape the consequences of not dealing with all risks appropriately, particularly compliance, and not dealing with all customers appropriately,” he said.



Source link Finance News Australia

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