Via the AFR:
Commonwealth Bank was being pressured by the prudential regulator to appoint external consultants and fix its flawed home lending data almost 2½ years before the Hayne royal commission began exposing the big four for sloppy administrative errors and irresponsible lending.
The Australian Prudential Regulation Authority’s frustration with the failure of Australia’s biggest home lender to accurately identify what proportion of its loans were taken out by property investors and its level of exposure to big borrowers has been revealed in evidence tendered to the banking royal commission and published in a massive dump of more than 100 documents late last week.
A confidential internal catalogue of risks prepared for Commonwealth Bank’s board in July 2016 shows the bank was dealing with a spiralling list of concerns ranging from poor data controls and instances of overcharging to rogue trading and index rigging.
And Ian Rogers at Banking Day:
It’s the lash, the lasso or a blinding surprise as a panel of APRA scrutineers confer with the banking regulator on guidance and sanctions for Commonwealth Bank of Australia.
A curb or even suspension on payment of dividends by the bank looks a red hot risk, this outcome being an extreme option unavoidably under debate. CBA paid a full year dividend of A$4.21 last year and the same is widely (if unwisely) forecast for this year.
A panel headed by former APRA chief John Laker are in the final throes of composing their final report following six months of intrusive scrutiny of CBA. This report is due by the end of April, or in four weeks’ time.
Announced in the wake of last year’s bombshell allegations from financial intelligence agency AUSTRAC and APRA, a fed-up government decided in August last year to undertake this unprecedented “prudential inquiry” into Commonwealth Bank. Jillian Broadbent, a former BT executive and Graeme Samuel, a former head of the ACCC are the two remaining members of the Laker panel.
APRA said at the outset that it intended to make the panel’s reports public, and did so with the progress report, released at the beginning of February. Late last week, APRA chief Wayne Byres told a parliamentary hearing “we know everyone will want to see it [the final Laker report], so we intend to release it as quickly as we can”.
This plants the Laker report’s release around the opening session of the banking industry’s half year reporting season. ANZ leads off this ritual on Tuesday, May 1.
…Laker and Byres have experience with the only parallel actions by APRA, back in 2004, toward a big bank with a record of serial losses attributed to slack managing of operational risk.
National Australia Bank became the centre of an imbroglio at the beginning of 2004, following losses of a few hundred million dollars on foreign exchange options trading. The two earlier rounds of whopping losses on the bank’s HomeSide division in the US was, then, still a sore point for many at the time.
The furore that followed soon cost NAB CEO Frank Cicutto and board chair Charles Allen their jobs. Even so, directors indulged in conflict over accountability for the FX fuss, with one even taking the board brawl public.
The sanctions applied by APRA at the time amounted to a refresh of the NAB board, a modest capital surcharge and public reporting by APRA and external scrutineer on the affair. There were also some scraps specific to the FX fiasco that kicked the fuss off. The NAB dividend remained intact.
The lasting legacy for NAB from APRA’s pulling of the leash in that manner? From the present perspective these seem minimal or none.
Thus, in the current case, a ratchet on the CBA minimum capital ratio will need to be hefty if it’s to make an (earnings per share diluting) impact and otherwise inspire the bank’s current janitors into drastic action.
The minimum follow-on from the Laker inquiry – spelled out in the terms of reference – include “to consider, whether [current] CBA initiatives will be sufficient to respond to any shortcomings identified and, if not, to recommend what other initiatives or remedial actions need to be undertaken.”
These are to be buttressed by an account of “other shortcomings or deficiencies that are not already being addressed by CBA [and] how such issues should be rectified.”
…The lasso is the ‘least worst’ outcome for the bank and pretty unlikely, assuming there is so much more negligent management that parallels the exposures around Aussie Home Loans uncovered by the Laker panel.
The lash, say a rerun of the 2004 sanctions on NAB; well, Laker and Byres were the principal authors of that intervention. Assuming that pair perceive little net benefit to NAB; why dabble in that pool again?
Something else, even unexpected, has to be on the sanctions shortlist. Banking Day’s conjecture – a curb on CBA’s dividends – may be novel, but one that can be drawn from the APRA arsenal provided by law, and it’s a risk routinely listed by banks in disclosure documents.
Nothing resembling the status quo passes any version of the pub test.
Oh dear.
