Market reacts to CBA independent Inquiry by APRA.

Bishwas Bhattarai, Senior Lending Manager
M. Comm. (Banking & Finance) UNSW, Dip. Fin. Plan.

29 August 2017

Australian Prudential and Regulatory Authority (APRA) have decided to set up an inquiry in nation’s largest Bank Commonwealth Bank of Australia (CBA). It comes amid the latest money laundering and bad practise that recently been highlighted. It is alleged that local and overseas criminal syndicate and drug trafficker may have used its smart deposit ATM to launder millions of dollars out of this country.

Australian Transaction Reports and Analysis Centre (AUSTRAC) also has filed a notion on federal court this month to prosecute CBA with over 53 700 counts of AML and related issues since 2012.

Similarly, Maurice Blackburn Lawyers has expressed their intention to take CBA over share price fall, related due to alleged anti-money laundering and related cases. This could cost them millions of dollars to settle the matter. Maurice Blackburn Lawyers have expressed the shareholders disappointment and director’s negligence that ultimately cost the shareholders.

Naturally, the news of regulators inquiry did not went well with the market and CBA’s share price fell by 1.75% on the news today. Since, August 3rd CBA share price has lost 9.5% value totalling almost $13 Billion market Capitalisation value.

Recently CBA has been under the spot light with series of events questioning the bank’s bad practise, governance, culture, accountability along with customer and product unsuitability to rogue trading.

APRA did confirm that Bank is well capitalised and financially sound in a statement to ASX.

The recent scandal has already claimed the scalp of CEO Ian Narev, Bank announcing that Ian will retire on June 2018 however, will remain to steer the ship during this turbulent times. It all happened only after a day when CBA board expressed its full confidence on departing CEO. It is widely expected his new move may be in Rugby Union after radio host Alan Jones related his as right man for the job.

AUSTRAC’s Peter Clark did confirm on the parliament hearing that AUATRAC looked into monitoring of intelligent deposit machine with other major banks and did not identify any issues.

It is expected that the outcome of inquiry may not be very pleasant and could unravel series on other issues, and could spread to other key players as well. The opposition are already calling out for Royal Commission on Australian Banking Industry since its last financial planning scandal from CBA. Treasurer, Scott Morrison has distanced the government expressing his views that the regulators are better placed to conduct the inquiry.

Only early this month, CBA announced its record $9.8 billion profit for the fiscal year. As an extraordinary measure Bank did announce to slash its short term bonus for all executives for 2016-17 and cut directors fees by 20 per cent for 2017-18.

CBA’s chairwomen Catherine Livingstone said “CBA recognises that event over recent years have weakened the community’s trust in us. We have been working hard to strengthen trust, and will continue to do so. We welcome this opportunity for independent parties to review the work we have undertaken and advise on what more we can do. “

“APRA’s over sight of this inquiry will ensure the independence and transparency needed to reassure all our stakeholders.”

It is understood, series of error may have occurred due to lack on automated reporting system when over $10 000 were deposited from its intelligent deposit machines (ATM). It is alleged that several deposits of $20 000 (200banks notes) were deposited in several instances that has been linked now to criminal activity and money laundering case overseas.

Nevertheless, CBA will have to face the music; the report of inquiry may take a while to be completed. But majority, of fund managers are already flagging “ Sell” recommendation on CBA stock which, could means more bloodbath on the way.

Currently, CBA is the largest ASX listed company with over $130 B capitalisation followed by its rival Westpac Group just over $110 Billion market capitalisation. 4 major Australian Banks are listed under the top 10 ASX list and Australian Banking system is regarded as Blue chip stocks with all majors paying over 5% franked dividend.