Commonwealth Bank Profit Rises; in Talks Over Life Business

  • Establishes board committee to oversee money-laundering suit
  • Bank to buy remaining 20% of Aussie Home Loans business

Morningstar Analyst Sees Strong CBA Earnings

Commonwealth Bank of Australia reported its eighth consecutive year of record profit, driven by growth in mortgage and business lending.

Cash profit, which excludes one-time items, rose 4.6 percent to A$9.88 billion ($7.8 billion) in the 12 months ended June 30, from A$9.45 billion a year earlier, the Sydney-based lender said in a filing Wednesday. That compares with the A$9.79 billion median estimate of 13 analysts, according to data compiled by Bloomberg.

Read More: For a breakdown of Commonwealth Bank’s results

“This was a good, solid performance” David Ellis, banking analyst at Morningstar Inc., said in an interview on Bloomberg Television.

However, Ellis warned the results risk being “overshadowed” by allegations from the nation’s financial crimes agency that the bank breached money-laundering and terrorist-financing laws more than 50,000 times.

The board Tuesday stripped Chief Executive Officer Ian Narev and other senior executives of their short-term bonuses after “consideration to risk and reputation matters.” Commonwealth Bank has blamed a software coding error for most of the alleged breaches.

There is a “limited” amount the bank can say about the proceedings, considering they are before a court, Commonwealth Bank said. “At this time it is not possible to reliably estimate the possible financial effect.”

The maximum penalty is A$18 million per breach. Gaming company Tabcorp Holdings Ltd. in March agreed to pay a A$45 million penalty to settle 108 breaches of the legislation, the biggest civil corporate penalty in Australia.

The bank has established a dedicated sub-committee of four directors to oversee its response to the suit and an upgrade of its financial-crime monitoring technology, Chairman Catherine Livingstone said in a separate statement.

Margin Squeeze

Australia’s big-four banks have this year increased interest rates on investor and interest-only mortgages following pressure from regulators to rein in credit. Analysts had predicted this would allow the banks to boost lending margins squeezed by the low-rate environment and intense competition.

However, Commonwealth Bank said increased competition in business lending had largely offset the benefit of home loan repricing, with its overall net-interest margin flat down 3 basis points from a year earlier at 2.11 percent.

The bank said it is in discussions with third parties about their potential interest in its life insurance unit in Australia and New Zealand. The talks may lead to the sale of the business but the outcome of the discussions is uncertain, the lender said.

The bank will also buy the remaining 20 percent of mortgage broker Aussie Home Loans it doesn’t currently own, after founder John Symond exercised his option to sell the stake.

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