Wed, May 02, 2018 - Page 11 News List

Outlook darkening for scandal-hit Australian banks

Bloomberg

Australia’s beleaguered banks are facing up to a bleaker future.

In another bad day for the industry, a scathing report released yesterday into the nation’s largest lender found a “widespread sense of complacency” from the top down blinded it to risks that led to a massive breach of money laundering laws.

Additionally, in a stark warning the good times are over for some of the world’s most profitable banks, the head of the nation’s No. 4 lender said a two-decade “golden period” is coming to an end.

The damning report into Commonwealth Bank of Australia piles further woe on an industry that has lost public and political trust amid revelations of widespread misconduct — ranging from lying to regulators to falsifying documents and taking bribes.

The outcry has crimped banks’ pricing power and emboldened regulators, threatening profit growth.

“The litany of issues facing the banks and financial services is extraordinary and dismaying,” Australian Shareholders’ Association CEO Judith Fox said. “This is the moment for the board to step up to the plate and deliver. Not just at this bank, but across all banks.”

The 109-page report found financial success “dulled the senses” at Commonwealth Bank and engendered complacency.

The report, commissioned by the Australian Prudential Regulation Authority (APRA) in the wake of the money laundering scandal, called out insular attitudes, a lack of intellectual curiosity and a pay structure that had “little sting” for senior staff if things went wrong.

“A widespread sense of complacency has run through Commonwealth Bank, from the top down,” the report said. “Commonwealth Bank turned a tin ear to external voices and community expectations about fair treatment.”

The bank has also been hit by a succession of allegations about mistreating customers, from giving poor financial advice to failing to honor insurance claims.

The report was critical of the tardy response to such issues, saying that a “slow, legalistic and reactive, at times dismissive, culture also characterized many of Commonwealth Bank’s dealings with regulators.”

In the only financial sanction, the APRA has applied a A$1 billion (US$751.7 million) add-on to Commonwealth Bank’s minimum capital requirements.

“My job is to fix what is broken and do what is necessary to earn back trust,” Commonwealth Bank CEO Matt Comyn said, as the lender promised to implement all 35 of the report’s recommendations. “It’s certainly a challenging environment in banking at the moment.”

Comyn, who replaced Ian Narev last month, has already been dealing with the fallout from a separate widespread inquiry into financial system misconduct that has swept up the other banks and seen the CEO and chairman of wealth manager AMP Ltd resign.

“The pressure will not relent until there is demonstrable evidence that Commonwealth Bank has turned the culture around,” said Daniel Smith, Australian head of CGI Glass Lewis, a governance analysis and proxy voting firm. “Whilst the report is targeting Commonwealth Bank, the other major banks will do well to heed the comments and look themselves in the mirror.”

The damage from the scandals plaguing the industry was recognized by Australia and New Zealand Banking Group Ltd (ANZ) CEO Shayne Elliott.

“Our sector has had a golden period for 20-plus years and we don’t think that’s going to continue,” Elliott said yesterday, after the bank posted a small increase in first-half profit. “I imagine there will be lots of changes that ourselves and other participants will make.”

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