9News: Commonwealth Bank Fronts Shareholders

Peter Overton: Fraud allegations, climate change denial and excessive executive pay – they are just some of the issues that angry shareholders have levelled at the bosses of the Commonwealth Bank.

But after a year to forget, the banks board survived the indignity of being stood down.

Ross Greenwood: There are many small Commonwealth (ASX:CBA) shareholders who are not happy.

Shareholder: They have a lot of questions to answer

Shareholder: As a shareholder, I’d like the company I have shares in to act ethically at all times, I think there’s a question of ethics here and a lines been crossed.

Ross: Today, if more than 25 per cent of those shareholders voted against the banks executive pay, tall directors would’ve legally had to resign.

Bill Watson: We think the commonwealth Bank Board has done a dreadful job with the AUSTRAC affair that will ultimately cost shareholders a large amount of money.

Ross: The legal action by AUSTRAC that the Commonwealth failed to report more than 53,000 potentially suspicious transactions was the final straw for some. But not enough –

Sonja Davie: there are a lot of questions to do with AUSTRAC, but the bill couldn’t be in response to that – it made to be in response to the remuneration report.

Ross: The board survived, but there are big changes – CEO Ian Narev said he will go next year.

Ian Narev: I will take responsibility, for that, and I apologise for the distress caused to customers.

Ross: The irony is despite one of the worst years on record for their Commonwealth bank – it itself is trading quite well.

Its first quarter profits were up 6 per cent to $2.65 billion, that’s healthy.

But right now, these shareholders don’t know how much they might pay to settle the AUSTRAC allegations.

The Commonwealth said its defence will be launched in the Federal Court in mid-December

It wasn’t the only contentious issue. The bank also flagged it will provide less finance to the coal industry.

Jonathan Moylan: the biggest public company effectively saying it won’t invest in new coal mines.

Ross: Ross Greenwood, Nine News.

 

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Money Minute – November 15 2017 High Noon At CommBank

High Noon At CommBank

Certainly a big day! And the Annus Hornbills, as the Queen once said, comes to an end for the Commonwealth Bank (ASX:CBA)  tomorrow when the board fronts shareholders at its Annual general meeting.

Now to set the scene for you, the bank is facing civil legal action from the government agency, AUSTRAC, that it breached anti-money laundering rules on 53,000 separate occasions.

A potential fine could run into hundreds of millions, or even billions of dollars.

The CommBank exited its life insurance division after scandals in its CommInsure business. There is even a suggestion that it will exit wealth management as well after the horrendous financial planning scandal.

The CEO, Ian Narev, has already said he is leaving next year. The head of the Wealth division, Annabelle Springs, is also going.

The new CEO is yet to be appointed. On the board of directors, Harrison Young and Launa Inman. Andrew Mohl, the former successful boss of the AMP will go next year.

There’s a class action underway by Maurice Blackburn and a 6 month investigation into the bank and tis government by the bank regulator APRA. And with our fractured Parliament, there’s a chance within weeks Crossbenchers and Labor will try to launch a Royal Commission into our Banks.

So nothing to see at Australia’s largest company, Australia’s largest bank.

Oh! There is one thing – if shareholders vote against the executive remuneration report tomorrow, the whole board has to resign and put themselves up fro re-election.

That’s because shareholders voted against the report last year, two strikes in a row and the board has to roll.

Add to that, Bill Watson, boss of the $3 billion super fund, First Super, is actively lobbying other big super bosses to vote against the remuneration report, to spill the board.

Will he be successful? Well – that’s questionable.

Major Proxy group to recommend how big shareholders should vote are siding with the board right now. But tonight will be sleepless for most at the Commonwealth Bank.

Stay tuned.

Markets

Overnight, the Dow Jones down 42 points.

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Has CBA made its shareholders happy?

Ross Greenwood speaks to Bill Watson, CEO of First Super, about why they are pushing to spill the CBA board

Introduction: Has CBA made its shareholders happy?

Ross Greenwood:  Welcome back to money news right across the country. On Thursday, this week, is going to be the annual meeting of Australia’s largest company, Australia’s largest bank, the Commonwealth Bank of Australia. It could be a dogfight. The reason for that is because at last year’s annual meeting, there was a first strike against the bank’s remuneration report. This is the report that ultimately shareholders have to sign off on to pay the chief executive, to pay the board and whatever it might be.

Now in the particular case of Australian corporate rules, if you have shareholders vote against the remuneration report once, that’s okay. If they vote against it twice consecutively, then the board must resign then put itself up for re-nomination, at which time, the shareholders can then vote against individual directors if they wish.

Now, as a result, this Thursday, if there is a second strike, that’s what would take place.

The board would have to spill unless PM must come off board itself has significant issues right now that it fights this. Not the least of thing, there are more than 53,000 counts that have been placed against to by the money tracking agency, government agency, Owl’s Track, which could carry multi-million or even billion dollar fines for the bank. As a result, it’s interesting to note that there is right now a campaign to try and get a spill of the board by having shareholders vote against that remuneration report. It’s being led by First Swooper, which is an industry super fund. The chief executive, Bill Watson is on the line right now. Many thanks for your time, Bill.

Interview with: Bill Watson, CEO, First Super

Bill Watson: Pleasure.

Ross Greenwood:  You’ve been sending letters around to other industries, superannuation funds. In other words, big shareholders of the Commonwealth Bank urging them to vote against the Commonwealth Bank’s remuneration report. Why have you done that?

Bill Watson: Quite simply put, we don’t think that the current board has done a very good job looking out to shareholder interest, or for that matter, looking at the customers. It’s been one scandal after another, and most recently, lost the field’s hiding to record money laundering. That exposes the company too as you’ve said. Hundreds of millions, potentially billions of dollars, with prime. The first prime’s legal panel are levied Biles track through the Federal Court proceedings. Shareholders are going to pay and we’re not happy about that.

Ross Greenwood:  In that regard, you would vote against the remuneration report quite specifically because that’s where they always are ready to strike against the board. From

last year’s annual meeting, why would you therefore have grounds to vote against remuneration report?

Bill Watson: For two reasons. Firstly, fighting against the remuneration record is one of the few ways that shareholders have got to vote for their disapproval, if I had the disapproval of the actions of the board. The second thing is, the remuneration report has been substantially revised. The remuneration’s been substantially revised since last year because of complaints by shareholders. Every reason that it’s still a pretty easy job for a Commonwealth Bank to take it to get paid to bonus, and we don’t think that’s fair to shareholders.

Ross Greenwood:  In the event that they were a spill of the board, would you then vote against each and every one of those directors coming up for re-nomination. Then, what would happen to the bank given the fact it would be effectively radar less without a board?

Bill Watson: Well, it’s conflicting to bet that, Ross. We have an open mind in relation to a number of directors who have been recently appointed, that is in relation to the last 12 months.

Ross Greenwood:  Including the chair, Catherine Livingstone, the former Telstra Jim?

Bill Watson: Yes, we’ve got an open mind there in relation to that. I don’t think the bank would in fact be radar less. I’ve heard the number of people and I’m happy too that the institutions like Commonwealth Bank are quite capable of withstanding challenge at the top and in fact doing a very good job at it. It would be a relatively quick and simple crisis to have to spill off the board and the candidates to offer themselves to re-election. I’m it talking about the time drama that occurred in parliament about that the people are Australian citizens or not.

Ross Greenwood:  In deed. Given the fact that there is one person who’s clearly not an Australian citizen, and that is the chief executive here in the Rave, who has already flagged that he will retire in the middle of next year. There’s also the head of wealth management at the Commonwealth Annabel’s Spring who has said that she is leaving as well. There’s a number of others who are going, including directors Harrison Young and Laura Ingerman, are going after the share dementing. Is this not enough to go as a result of some of the issues that the Commonwealth Bank to really make those responsible pay with their positions?

Bill Watson: No. We don’t think it’s sufficient because there are a number of other directors who are staying on the board at all material times from 2015 onward when the board became aware of these AUSTRAC issues. We don’t think it’s acceptable to tear apart the whole directors, I think they probably deserves it. But there’s a number of other directors who have been on the board during the AUSTRAC money laundering scandal. As far as we can say, that’s just not acceptable. Trying to argue that I haven’t been around very long as an excuse to tighten the bolt just doesn’t cut it with us.

Ross Greenwood:  Bill, just one other aspect of this because I do know that the other shareholder proxy firms. In other words, those who often vote on behalf or give recommendations of big institutions in the way they should vote, we’re talking here OISS, Designership Matters, there’s CGI Glass Lewis, of the three big firms in Australia. They have actually told large institutional clients to vote in favour of this remuneration report. Have you reckoned the vote will actually end up?

Bill Watson: At this stage, I don’t know. We’ve got some support but we’ve got to get 25% of shareholders divided by those who so vote against the remuneration report. Last time round, a number of proxy advisors recommended voting against the remuneration report, which is why we got the strike. I think we’re going to be struggling to get the numbers, but it’s really important we do give a message to the board that they haven’t done a good enough job.

Ross Greenwood:  I’ll tell you what, great to have you in the program. Bill Watson is the chief executive of First Super, an industry superannuation fund with $3 billion in it. It’s not small by any stretch of the imagination. Of course, he’s running a campaign, sending letters out to a lot of the big industries superannuation funds around the country, about the Commonwealth Bank and its remuneration report at its annual meeting on Thursday this week. It’s going to be an interesting one to watch. Bill, I appreciate your time on the program this evening.

Bill Watson: Thank you for the opportunity.

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The Commonwealth Bank’s reputation without a doubt has taken a battering in recent months. There are charges laid against them that they failed to properly about potentially suspicious transactions, plus the aftermath of the financial planning scandal and in its life-division sector.

So what impact has that had on the banks operations? It seems absolutely nothing.

If anything, it seems the bank is doing better now than most of its rivals.

Quarterly figures yesterday showed cash profit $2.65 billion – that’s up 6 percent on last year.

Which – given everything – is a pretty healthy clip, certainly better than most of its rivals.

The result was a surprise and pushed up the Commonwealth bank share price, which pushed the overall market higher.

This is not to trivialise the problems at our biggest banks and out biggest company. It has put away $100 million to fight the AUSTRAC allegations.

Now, that $100 million is not to pay for any potential fine by the way – that $100 million is just to fight the legal battle.

The fine potentially could be many, many times greater. And that’s why the banks $3.8 billion sale of its controversial life insurance division, CommInsure, could help pay for any massive fine without any going to the shareholders. Of course, only if there is an adverse finding.

Now, there is something else here – an overwhelming majority of customers are clearly not affected by this scandal. They go about paying off their home loan, or their business loan, and it would appear from the growth – they are happy with the growth.

If that were not the case, we would see that banks slowing, its rivals would be picking up momentum as they gain customers from the Commonwealth .

Now, on that subject – there a mini home loan war breaking out with the ANZ on Friday cutting a key principal and owner/occupier rate to 3.99 per cent – that by any stretch of the imagination is the cheapest in the market.

But it gives you a bench mark if you’re negotiating.

Markets

Overnight, the Dow Jones Index, just a short time ago, down 7 points. The Dollar 76.75US Cents

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Did the Commonwealth Bank CEO survive his grilling?

Ross Greenwood speaks to David Coleman, Chair of the House of Reps Standing Committee on Economics, about the CBA CEO and Chair facing the inquiry over the AUSTRAC claims.

Introduction: Did the Commonwealth Bank CEO survive his grilling?

Ross Greenwood:  I also want to take you to another thing which was a fiery encounter inside our Parliament House today. This was the very first time that the Commonwealth Bank was in front of the House of Representatives standing committee on economics which is having a bank inquiry on a regular basis. Now the thing about this war is that clearly, you’ve got now, more than 54,000 separate charges being brought on a civil basis by AUSTRAC the anti-money laundering authority that claims that the Common Wealth Bank that breached its requirements to report any transaction of more than $10,000.

Well, the chairman of that committee is David Coleman and certainly the encounter with the chairman of the Common Wealth Bank Katherine Livingston well, it was a little bit tasty.

Interview with: David Coleman, Chair of the House of Reps Standing Committee on Economics

David Coleman: You signed off on a remuneration report that found all metrics had been met and one which actually relates to risk where there is billions of dollars of exposure was above target. It is very, very hard to see how at bare minimum that is not extraordinarily incompetent if not more problematic for the individual directors in there. Surely it must be the case that the board has manifestly filed its duty with respect to the remuneration report.

Katherine Livingston: The decision process that goes into remuneration takes into account as you’ve pointed out risk and control matters. The basis on which the board reached those conclusions and specifically in relation to the fail TTRs is actually relevant to the AUSTRAC proceedings and therefore I’m just not in a position to comment.

Ross Greenwood:  Okay, interesting stuff. In other words suggesting the board had failed in its duty. Well, the chair of the house representative standing committee on economics David Coleman is on the line right now. Many thanks for your time David.

David Coleman:  Good to be with you Ross.

Ross Greenwood:  Okay. This is the first time that the Common Wealth Bank had in front of your committee since the AUSTRAC allegations had come out. We’re you satisfied with the responses you heard from both the chairman of the Common Wealth Bank, Katherine Livingston and also the chief executive Ian Narev?

David Coleman:  Well, look there are very serious questions that still remain unresolved, Ross. If you look back at 2015/16 the board by its own admission was aware of these matters in relation to the as you said the 54,000 such so-called TTRs that hadn’t been disclosed. The fact is the board did not disclose that to the market. It’s also the fact that in 2015/16, the board signed off on a remuneration report that basically said that the executive team had met all KPIs and that all elements of this short-term incentive were being successfully achieved.

Ross Greenwood:  I’m I right to say, David I’m going to jump in now and say that your basic issue with that is that they’ve signed on all the KPIs as you call them the Key Performance Indicators, not withstand the fact that the bank even at that stage was aware of the investigation and if you like the accusations that had come from AUSTRAC?

David Coleman:  Yes, that’s right. The bank by its own admission was aware that there had been tens of thousands of breaches, the requirement to report the potentially suspicious transactions. It means that back in 2015 but at the end of 2015/16 it’s obvious it didn’t disclose to the market and secondly, in its remuneration report, it said that all of the performance indicators of the management team had been met. It’s very reasonable to question, Ross, whether the board was doing its job in 2015/16. In 2016/17 and after the AUSTRAC matter became public, the board then acted and cut executive bonuses and the board members, things as well. What was said today was that that was done in response the reputation risk to the bank after the AUSTRAC matter became public.

The real issue is not just what AUSTRAC made public, the real issue is what actually happened. It’s clear that there were substantial amount of that activity, the board was well aware of that close to two years before it became public. I think there are several issues to be investigated and certainly, AUSTRAC is doing so. The chairman and said he’s looking into that and looking into any related directive duty issues and so on and that’s entirely appropriate.

Ross Greenwood:  I know it’s certainly that the Common Wealth Bank has been the subject of most of the damning allegations against our four major banks in the last little whiles. We’re thinking about financial planning scandals, we’re thinking about issues in regards to insurance arm which is now being sold off called CommInsure and about whether doctors were asked to change patients diagnoses to make certain that I did not have to pay claims. Then on top of that now you’ve got this situation with AUSTRAC and whether the Common Wealth Bank in a timely manner or indeed at all reported potentially suspicious transactions of more than $10,000 to anti-money laundering organization. The question is you’ve got the big four banks before. You today saw both the National Australia Bank and also the Commonwealth. Are you satisfied that there is not any systemic issues running right through these banks? That’s what you’re trying to get to the bottom of to find out whether they are accountable for their actions and what takes place.

David Coleman:  Well, certainly in relation to these AUSTRAC type issues we asked each of the CEOs for the other three banks that exact question Ross, and they all said that they were not aware of any such issues and in many cases they said that they’d been essentially cleared by AUSTRAC without there being any issues. Certainly, they’re representing that that’s not the case. As you know a big part of this inquiry is about improving the banking system more generally.

That’s why the inquiry recommended the ACCC goes into the banks to really scrutinize the policies of the banks in relation to the Australian interest rates. That’s why the government is setting up the Banking Executive Accountability Regime to improve accountability in the future. We talk a lot about getting redressed when things go wrong for customers and as you know that’s been really hard in the past. We’re fixing that by setting up a one-stop shop for the Australian Financial Complaints Authority.

As you’ve also seen, we’ve got the banks to move in relation to low-cost credit cards. Three of the four have moved on that. We’ve also had success in terms of the ATNC being abolished. There’s a lot of good things happening here Ross but obviously, there are still concerns about various issues in the banking sector and that’s what we’ll continue to focus on.

Ross Greenwood:  Do we have to be at all concerned about the public’s attitude and view of our major banks? Yes, we want them accountable, yes, we want them to treat us well, yes, we want them to be honest but by the same token, we also want people to have faith in our banks. Is there any concern that the faith in the big banks could be eroded by the constant investigations into them?

David Coleman:  Well, look, Ross, you’re right. The strength and stability of the banking system is very important. We all benefit from that. The last thing, of course, we would ever want to do is see these sort of things happen that happened after the GFC in Europe and the United States. The strength and confidence and profitability of the banking sector is a positive thing for the country and we should never forget that. But by the same token Ross, the fact that strength is important doesn’t mean that any behaviour by banks is okay. It’s not.

A part of being strong is being responsible and it’s about also about doing the right thing. Where there are examples of banks doing the wrong thing that needs to be held to account. That’s an appropriate function for the parliament as I said we’ve made a number of reforms to laws and other matters in the last year to address some of these issues but it’s certainly not the case that just because we want stability that we don’t also very thoroughly investigate wrongdoing. We need to do both.

Ross Greenwood:  The other issue today that came out was the National Australia Bank which was something I had not heard of before. That was in regards to some 2000 occasions when staff had come forward where there were declarations on forms regarding a person’s superannuation as to who might get that money. The bank says that there is an issue here. Can you just explain exactly why that’s so important?

David Coleman:  Yes. Well, what this is about Ross is there are about 2,000 occasions when somebody at NAB falsely declared that they had witnessed a document that they hadn’t and this was in relation to people declarations about who they wanted to be the beneficiary of their superannuation balance on reason of their death. Now, the bank says well, there was a certain witness who fraudulently said they’ve witnessed that when they haven’t. The fact is by the bank’s own admission on 2,000 occasions, somebody has signed to say they’ve witnessed a document that they haven’t. That’s obviously a systemic issue. The bank said that more than 300 people have owned up to being involved in this. NAB has said that it’s going to be publishing the results of its internal survey and the internal investigation, including at the involvement from ACIC next month.

Ross Greenwood:  To tell you what, it’s going to be interesting to watch that as well. David Coleman. We’ll keep an eye on that one as well. Because remember, this about who gets the superannuation and remember that what you write on that super fund when you first join that, unless you change it, it could certainly direct it way from your intended person. That even though they might be in your will. David Coleman is the Chair of the House of Representatives standing committee on economics that does inquire into the banks on a regular basis. And David, I appreciate your time.

David Coleman:  Thanks, Ross.

 

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