Commonwealth Bank Deposit machines scandal overshadows $9.88b profit
The massive profit of $9.88 billion by the Commonwealth Bank has been over-shadowed by allegations from money-tracking regulator Austrac that the bank failed to properly monitor cash transactions by criminal syndicates.
That’s because the Commonwealth is such a powerful organisation in Australia. It has 51,800 employees; more than 800,000 shareholders and 16.6 million customers. The bank paid tax in the last financial year of $3.95 billion (that by the way, is around 1 percent of the total tax collected by Government last year). It does not include the tax paid by employees or suppliers.
Every Australian, through their super fund, their direct income or even Government-paid community facilities is affected by the success or otherwise of the Commonwealth Bank.
The allegations place enormous pressure on the board and on CEO Ian Narev. Clearly, there is good reason. Having systems that turn a blind eye to money laundering has plagued major banks around the world for the past five years. HSBC, Standard Chartered and others have been it with massive fines in the US. Locally Tabcorp paid a huge $45 million earlier this year to settle similar, but vastly smaller, allegations.
Other issues for the bank include the legacy issues of its financial planning division and insurance operations. In both cases, the reputational damage was slowly being overcome. Certainly, today, the bank reports its retail customer satisfaction score increased from 70.5% in June 2007 to 82.7% … but it has drifted off in the past couple of years.
With record low interest rates and house prices soaring in the major capital cities, the Commonwealth Bank is – and should be – in a sweet position right now. At the edges its margins have been squeezed a little. Loan impairments is close to all-time lows and consumer arrears – though nudging up slightly – are also near their lows.
All that is vital … but any institution the size of the Commonwealth relies on the good-will of its customers, shareholders and staff to maintain trust within the community. If its systems or people fail that trust, then the reputation and value of the bank is chipped away. A simple example: if a smart finance graduate thinks: “I will work for another bank, rather than the Commonwealth,” then the bank has lost.
The shareholders are also key. There is little doubt a possible multi-billion fine that could hurt the Commonwealth is being discounted by shareholders. Its shares have fallen since the Austrac allegations were revealed … but only a little. The shares have fallen from $84 to just over $80. That suggests shareholders are not expecting financial calamity as a result of these allegations.
But do not take that for complete satisfaction with the bank. Last year – at the Commonwealth’s annual meeting – more than 50% of shareholders voted against its executive remuneration report. Rejecting that report sent a big message to the board and management. Shareholders were already not happy – especially with the executive salaries.
If there was a second strike on the remuneration report this year, the whole board would legally have to spill … and put themselves up for re-nomination. It is never a good look for a company … even worse when you are the nation’s largest company and largest bank.
That’s the reason why new Chairman Catherine Livingstone moved quickly to stop bonus payments for senior executives. And why she cut the board’s pay by 20 percent.
Under such trying conditions, the Commonwealth does not need the embarrassment of a board-spill to add to its pile of issues right now.