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The Commonwealth Bank's really bad and expensive year just got worse with another $335 million likely to be stripped from its 2019 bottom line by new costs dealing with regulatory compliance and plans to shrink its business.
Key points:
- The bulk of the new costs relate to an additional $200m on top of an existing $270m provision for the the fee-for-no-service scandal
- CBA also faces extra costs selling its scandal-plagued Comminsure Life business and demerging its wealth arm
- The bank clawed back $135m in insurance from its disastrous $700m money-laundering fine
The new provisions are on top of the $1.1 billion of fines and "one-off" regulatory costs the CBA detailed in its 2018 full-year results.
In a statement released to the ASX minutes before the market closed on Tuesday afternoon, the CBA announced another $100 million had been set aside to deal with its, "financial crime compliance Program of Action and other ongoing compliance and remediation programs".
"This is in addition to provisions taken for the Program of Action in the year ended 30 June 2018, and previously announced remediation provisions for Credit Card Plus, Personal Loan Protection and Home Loan Protection insurance," the bank said.
The planned demerger of its wealth management and mortgage broking businesses — now called NewCo — from it main retail banking business is likely to cost more due to legacy issues, many of which were raised in recent royal commission hearings.
Fee-for-no-service scandal widens
The bank said an another $200 million would be held as an indemnity provision for "historical NewCo-related remediation issues and associated program costs, including ongoing service fees charged by aligned advisors".
This is on top of the $270 million in compensation already paid by CBA to customers who were provided with poor quality advice or charged fees where service was not provided.
With the scandal's remediation costs now pitched at $470 million, that equates to an average refund of almost $300,000 per advisor across the CBA's 1,600 strong network of financial planners.
The latest provision involving "aligned" financial advisors is an indication the "fee-for-no-service" scandal was much wider than first thought and the bank may still not have got to the bottom of the issue as many advisors appear to have difficulty verifying what work they actually did for their clients.
The CBA also added another $55 million in transaction and separation costs to the sale of its scandal-plagued CommInsure Life business to the Hong Kong based AIA.
The relatively good news for the bank was it was able to claw back $135 million from professional indemnity insurance policies.
The less good news was insurance payments largely related to the Australian corporate record $700 million fine from breach to Anti-Money Laundering and Counter terrorism Funding laws.
Shaw and Partners' bank analyst Brett Le Mesurier recently calculated bad behaviour by the "Big Four" banks and AMP had so far cost them close to $3.8 billion, but this was likely to almost double to $7.4 billion by 2020.
The cost of bad behaviour
| Company | Prior costs | H2 2018 costs (est) | H1 2019 costs (est) | Total (est) |
|---|---|---|---|---|
| AMP | $517m | $83m | $570m | $1,170m |
| ANZ | $340m | $573m | $470m | $1,383m |
| CBA | $2,257m | * | $320m | $2,577m |
| NAB | $300m | $450m | $350m | $1,100 |
| WBC | $384m | $376m | $410m | $1,150m |
| Total | $3,779m | $1,480 | $2,100m | $7,379m |
* CBA has already released H2 2018 results & treated as "prior". Source: Shaw and Partners, companies
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