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19 April 2024

Commonwealth Bank interim profit falls on scandal costs


Australia's biggest bank, the Commonwealth, revealed Wednesday it 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 net profit.

The 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, it 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 flat at Aus$4.9 billion, with a Aus$2.0 interim dividend announced.

The bank has been under intense scrutiny by Australia's financial intelligence agency AUSTRAC, with allegations that it engaged in "serious and systemic non-compliance" of anti-money laundering laws involving thousands of transactions.

In December, the Commonwealth admitted more than 50,0000 breaches, blaming a "systems-related error", but said it would defend a host of others claims brought 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 the lender 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 has claimed the bank 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.

Retiring chief executive Ian Narev said during the six months "we have focused a great deal of effort on fixing our mistakes, and becoming a better bank".

"We have taken a significant provision for regulatory and compliance costs, consistent with accounting standards," he added.

"We have also taken a $375 million expense provision which we believe to be a reliable estimate of the civil penalty a court may impose in the AUSTRAC proceedings.

"We recognise, 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."

Australia's three other major banks -- ANZ, Westpac and National Australia Bank (NAB) -- have also been probed by ASIC over rate-rigging claims.

ANZ and NAB settled their cases 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 underway next week.