CBA feels the pinch after record penalty

COMMONWEALTH Bank has posted a drop in annual cash profit of $9.23 billion, hit by a $700 million fine after the nation’s biggest bank broke anti-money laundering laws.

The profit drop was primarily due to the $700 million penalty paid to AUSTRAC, the largest in Australian corporate history, after CBA admitted to 53,700 breaches of anti-money laundering and counter-terrorism funding laws.

The bank was also hit by $155 million in costs relating to the banking royal commission.

CBA chief executive Matt Comyn said it has been a “difficult” 12 months, but the bank’s business fundamentals remained strong. “We got some things wrong. We have made mistakes,” he said. “We absolutely need to make sure we do not make them again.”

Mr Comyn, who took the helm from Ian Narev four months ago, said the bank was simplifying its portfolio, operating model and processes to improve its performance.

CBA is splitting with its wealth management and mortgage broking businesses following a series of industry scandals. The anti-money laundering scandal led to Mr Narev’s departure as CEO.

CBA’s financial performance was affected by a 14 per cent drop in cash profit at its institutional banking and markets division to $1.12 billion for the year ended June 30, due to a slump in trading revenue.

Citi analysts said CBA’s cash profit result was slightly below consensus estimates, but was unlikely to put too much pressure on the recent share price rally.

CBA’s other divisions all delivered cash profit growth, with its retail banking services unit, which accounts for more than half of its profit, posting a 5 per cent rise to $5.19 billion.

Its business and private banking unit reported a 4 per cent rise to $1.88 billion, while its Bankwest subsidiary, which is in the process of closing 29 branches along Australia’s east coast, reported an 18 per cent rise to $681 million.

Tighter regulatory rules around home and investor loans benefited CBA in 2017-18, with the bank reporting a five basis point rise in net interest margin to 2.15 per cent from a year earlier. Annual cash profit at CBA’s wealth management and New Zealand operations jumped 33 per cent and 12 per cent, respectively.

Excluding the one-off items, CBA’s annual cash profit was up 3.7 per cent. CBA will pay a final dividend of $2.31 a share, taking the full year payout to $4.31 a share.