Commonwealth Bank and AMP profits plunge amid regulatory crackdown

Two of Australia’s biggest financial institutions have absorbed huge financial losses after a regulatory crackdown and intense scrutiny from the banking royal commission.

The insurer and wealth manager AMP said its half-year net profit plunged 74% – from $445m to $115m – after being forced to compensate customers affected by its fee-for-no-service scandal, while Commonwealth Bank reported a full-year cash profit of $9.23bn, down 4.8% on the corresponding 12-month period.

AMP’s wealth management business also suffered net cash outflows of $873m in the first half of this year, as customers responded to shocking revelations at the royal commission that executives had repeatedly lied to regulators.

AMP’s acting chief executive, Mike Wilkins, told the stock exchange the royal commission hearings had “challenged our reputation” but said AMP had “taken action to stabilise the business and move forward”.

Shareholders were also told the former Treasury secretary John Fraser had joined AMP’s board as a non-executive director – less than two weeks after resigning from Treasury.

The revelations that AMP executives had repeatedly lied to regulators in the past about charging customers fees for no service have been some of the most shocking of the royal commission so far. The scandal saw the previous AMP chief executive Craig Meller step aside along with chair Catherine Brenner.

It also prompted the Turnbull government, which fought tooth and nail to oppose the commission being established, to propose tougher new laws for bankers and financial executives who engage in corporate and financial misconduct, including new 10-year jail terms.

Commonwealth Bank’s results show its eight-year streak of growing profits has come to an end. It reminded shareholders that CBA had agreed to pay $700m to settle civil proceedings relating to breaches of anti-money laundering and counter-terrorism financing laws.

The civil penalty proceedings were brought by the Australian Transaction Reports and Analysis Centre (Austrac) in August 2017, relating to alleged contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

Austrac had announced in August 2017 that it was suing CBA for 53,700 alleged breaches of money laundering and counter-terrorism financing laws. The case related to CBA’s use of intelligent deposit machines, a type of ATM launched in 2012 that let customers anonymously deposit and transfer cash.

CBA told shareholders the $700m was a non-tax deductible expense. Of that amount, $375m was recognised in the first half of the financial year, and $389m in additional provisions was recognised for the year ended 30 June.

“These provisions relate to financial crimes compliance, the Australian Securities and Investments Commission investigation, the shareholder class actions, the Austrac proceedings, the royal commission and the Apra prudential Inquiry,” the bank told shareholders.

The bank’s chief executive, Matt Comyn, said it had been a “difficult” 12 months for the business but fundamentals remained strong despite the challenges.

Comyn’s predecessor, Ian Narev, was stripped of $5.3m in bonuses, according to the bank’s annual report, which was released on Wednesday.

Re-disseminated by The Asian Banker from The Guardian

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