Australia bank’s interim profit falls on scandal costs
SYDNEY: The Commonwealth Bank of Australia (CBA) has put aside Aus$375 million (US$296 million) to pay potential fines from a money-laundering scandal as it posted a slide in half- year profit.
The country’s largest lender also booked a Aus$200-million provision to cover a series of compliance and compensation costs it may face, including those that could stem from an upcoming government inquiry into the financial industry.
For the six months to December 31, CBA recorded a 0.7- percent fall in cash profit, including the provisions, to Aus$4.87 billion from the year before, slightly below expectations.
Statutory net profit came in at Aus$4.9 billion, with a Aus$2 interim dividend announced.
The firm’s shares ended 0.79 percent lower at Aus$76.79.
The bank has been under intense scrutiny by the Australian Transaction Reports and Analysis Center (Austrac), the country’s financial intelligence agency, over allegations it engaged in “serious and systemic noncompliance” of anti-money laundering laws involving thousands of transactions.
Last December, CBA admitted more than 50,000 breaches, blaming a “systems-related error,” but said it would defend a host of other claims against it.
The Aus$375 million set aside was “a reliable estimate of the level of penalty that a court may impose,” the bank said after taking legal advice.
Last month it was also taken to court by the country’s corporate watchdog over allegations it rigged the benchmark interest rate.
The Australian Securities and Investments Commission had claimed that the lender engaged in “unconscionable conduct and market manipulation” when setting the bank bill swap reference rate (BBSW) in 2012.
The BBSW is a benchmark used to set the price of Australian financial products, such as bonds and loans.
“The market is likely to look upon these regulatory provisions as one- off costs,” said CMC Markets analyst Ric Spooner.
“It is very difficult to know what penalties the courts would impose for the Austrac breaches. However, CBA’s provisions are based on research and legal advice and are far less than some of the most pessimistic expectations.”
During the six months “we have focused a great deal of effort on fixing our mistakes, and becoming a better bank,” retiring CEO Ian Narev said.
“We have taken a significant provision for regulatory and compliance costs, consistent with accounting standards,” he added.
“We have also taken a Aus$375-million expense provision, which we believe to be a reliable estimate of the civil penalty a court may impose in the Austrac proceedings,” Narev said.
“We recognize, and regret, that these costs arise from our failure to meet some standards that we should have. We will continue to work hard to do better,” he added.
Australia’s three other major banks—the Australia and New Zealand Banking Group (ANZ), Westpac Banking Corp. and National Australia Bank (NAB)—have also been probed by ASIC over rate-rigging claims.
ANZ and NAB settled up before their trials began last October, paying hefty penalties. Westpac’s case remains before the courts.
The string of scandals engulfing the finance industry prompted Canberra to call a wide-ranging inquiry to restore faith in the massively profitable sector. It is due to get under way next week.