The fallout over the CBA’s money laundering scandal continues. Here’s a rundown of the key articles on this issue reported today via the mainstream media.
Over at The AFR, CEO Ian Narev has moved into damage control, admitting that CBA has “made mistakes” and assuring the public that it is taking charges of not reporting breaches of money-laundering regulations “very seriously”, but rejecting claims from Labor that the issue vindicates its call for a royal commission into the banking sector:
Mr Narev said CBA is taking the case filed by the anti-money laundering agency last week “extremely seriously”. He vowed “unequivocally” that senior executives would be held accountable although punishments could only be determined once the legal process had run its course…
[Narev] warned other banks against throwing stones, declaring it would be “bold” for any bank CEO to declare their compliance systems were perfect…
CBA argues this was caused by the same error in computer code being run on its “intelligent deposit machines”. This prevented reports from being generated automatically. “That’s the nub of it …This is the coding problem. They are all related to that single change of coding in 2012 which delinked them”…
As a result, the bank believes it only violated the law once…
Shadow Minister for Financial Services Katy Gallagher said on Sunday the allegations against CBA strengthen Labor’s resolve to hold a Royal Commission “to restore faith in our banking and financial system”, although Mr Narev said AUSTRAC’s case showed it is a diligent regulator, making a Royal Commission unnecessary…
Despite its extensive allegations, AUSTRAC’s case does not reflect a poor culture at CBA, Mr Narev argued.
At The Australian, Adam Creighton has called for the banking “fat cats” to have their bonuses “scratched”:
Let’s hope the bank teller in Sydney’s Leichhardt, who tried to raise the alarm when she saw someone repeatedly stuffing just under $10,000 cash into Commonwealth Bank ATMs, gets a performance bonus…
Move along everyone, nothing to see here!
The allegations against the Commonwealth Bank by federal authorities for turning a blind eye or at best dragging the chain on what appear to have been systematic cases of money laundering, suggest a mix of extraordinary negligence, incompetence, even arrogance among senior management at Australia’s biggest company…
Our humble teller might be still waiting for her bonus, but the bank’s top 12 executives collectively earned $225.4 million over the five years to June 2016, each having enjoyed bonuses — or what’s increasingly called “at risk pay” — every year of up to 200 per cent of their fixed salaries. The firm’s latest annual report says the bank strives to “embed a Culture of ‘Doing the Right Thing’… Yet ensuring that its internal processes quickly pick up cases of fraud, and working promptly with federal authorities, don’t appear to have been part of the criteria for these reliable instalments of “at risk pay”.
This latest CBA scandal highlights the dysfunctional incentives and governance problems that emerge naturally in massive corporations…
If we want executives’ behaviour to improve, penalties for poor behaviour need to fall on them.
The ABC has given the scandal wide coverage.
Business editor, Ian Verrender, has called for a widespread shakeout of the banking sector:
Where do you start?
A total clean-out of the board and management of the Commonwealth Bank, a complete rethink of the role of our financial institutions, or a subjective investigation on the impact of new technology and whether it can replace human involvement?
There is no way to understate the extent of the latest allegations against the Commonwealth Bank of Australia; ignoring money laundering for drug syndicates, turning a blind eye to terrorism financing and abjectly ignoring statutory reporting responsibilities for more than three years on three quarters of a million accounts.
This is a deeply disturbing failure on an epic scale, one with the capacity to undermine national security…
Let’s not be under any illusions about how and why this latest scandal has erupted. The CBA, like its competitors, has been on a mission for years to shave costs, shed staff and boost profits to feed the money-making machines that Australian banks have become…
Consider for the moment the impact this will have on the Federal Government. Prime Minister Malcolm Turnbull has spent a huge amount of political capital, at the big banks’ insistence, to thwart calls for a royal commission.
From the Government’s viewpoint, that has not simply been a wasted effort — it is a strategy that will come back to bite it.
As for the banks, which count among the country’s biggest political donors, at least now we have an inkling about the extent of the malpractice they have desperately been trying to hide…
The Commonwealth’s allegations about the extent of the breakdown of CBA’s legal obligations are breathtaking…
The odds on a royal commission have now shortened dramatically, for the Turnbull Government’s resolve to resist one must now be spent.
Not only that, the banks have lost any moral ground they may have thought they had in opposing the Federal Government levy.
Whereas Michael Janda has penned a piece noting that the CBA could now face a “lost decade of profit growth”:
Commonwealth Bank shareholders could be facing a lost decade of profit growth, similar to that endured by Westpac shareholders in the late 1980s and early 1990s and NAB shareholders in the early 2000s, cautioned a leading analyst.
The warning from CLSA’s Brian Johnson, who has covered the banking sector for about three decades, came after CBA found itself embroiled in yet another high-profile scandal…
“We believe there are [circa] 10-year individual bank stock cycles and success is driven by identifying either that 10-year cycle Australian bank laggard or Australian bank winner,” he observed.
In addition to the cost of the penalties and the lawyers to try and reduce it, CBA has sustained further serious reputational damage, which Mr Johnson said local and overseas experience shows costs banks and their shareholders over a long period.
“In the absence of positive earnings surprises CBA’s PE [price-to-earnings] premium is stretched and dividend payout ratio is vulnerable,” Mr Johnson said.
“To us CBA feels like NAB in 2002 or Wells Fargo in 2016 prior to its ‘fake’ credit card accounts scandal.”
The Commonwealth Bank also garners most of its profits from the home mortgage market, which appears to be at the top of a very large and long growth cycle and is vulnerable to a downturn.
Given the deep public distrust in the banks, following a spate of reports of misconduct, Labor should use this latest scandal as an opportunity to step up its lobbying for a Royal Commission (or Parliamentary Inquiry) into the banking sector to examine the structural, cultural and systemic failures of the banks.
