Australia's CBA vows
reputational rebuild as scandal taints record profit
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[August 09, 2017]
By Paulina Duran
SYDNEY (Reuters) - Commonwealth Bank of
Australia acknowledged 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
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 eclipsed by the 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, leveled 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 percent rise in annual
profit to A$9.88 billion ($7.82 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
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 Livingstone went further on Wednesday amid mounting calls for a
sweeping judicial inquiry into misconduct by 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
behavior, or any commercial motive".
CBA said it was not possible to reliably estimate the potential
financial impact on the group, although technically it could face
billions of dollars in penalties.
The regulator accused CBA of "systemic" failings to spot thousands of
illegal transactions, some of which allegedly involved drug syndicates
sending money abroad to centers like Hong Kong.
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Commonwealth Bank (CBA) CEO Ian Narev appears at a news conference
announcing the bank's full year results in in Sydney, Australia,
August 9, 2017. REUTERS/Jason Reed
Narev told reporters he was not aware that any foreign government had made
inquiries in relation to the transactions.
The AUSTRAC allegations are the latest headache for Australia's major lenders,
which have been embroiled in a series of scandals that have fueled calls for the
industry's dirty laundry to be aired in a judicial inquiry known as a Royal
CBA shares closed 0.57 percent higher at A$81.11 on the day, outpacing the
broader market's 0.36 percent 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
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
Net interest margin, the difference between interest costs and interest earned,
was unchanged in the second half at 2.11 percent, while loan impairment expenses
dropped about 13 percent.
CBA declared a fully-franked dividend of A$2.30 per share, for a yearly final
dividend of $4.29 per share, up 2.1 percent.
Corporate operating expenses jumped 20 percent due to higher costs of technology
and safeguarding information, reporting requirements and anti-money laundering
measures. The bank said it had spent A$3.64 billion on risk and compliance.
Livingstone said the bank had made progress in beefing up its
anti-money-laundering programs since late 2015, including recruiting more than
50 compliance staff.
(Reporting by Paulina Duran and Byron Kaye in Sydney, Rushil Dutta in Bengaluru;
Editing by Stephen Coates & Shri Navaratnam)
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