Commonwealth Bank has posted a drop in annual cash profit of $9.23 billion, hit by a $700 million fine after the nation’s biggest bank broke anti-money laundering laws.
The profit drop was primarily due to the $700 million penalty paid to AUSTRAC, the largest in Australian corporate history, after CBA admitted to 53,700 breaches of anti-money laundering and counter-terrorism funding laws.
The bank was also hit by provisions totalling $389 million, made up of risk and compliance provisions of $234 million and $155 million in costs relating to the banking royal commission.
CBA chief executive Matt Comyn said it has been a “difficult” 12 months, but the bank’s business fundamentals remained strong.
“It’s been a very challenging year for the Commonwealth Bank,” Mr Comyn told journalists on the group’s earnings call.
“From my perspective, I certainly feel like the organisation is in a much humbler place and I think that’s really important that we will remember the issues and what led to them and we make sure that those mistakes aren’t repeated in the future,” he said.
Mr Comyn, who took the helm from Ian Narev four months ago, said the bank is simplifying its portfolio, operating model and processes to improve its performance.
The anti-money laundering scandal led to Mr Narev’s departure as CEO.
CBA is splitting with its wealth management and mortgage broking businesses, and on Wednesday announced the sale of its South African business.
CBA’s financial performance was affected by a 14 per cent drop in cash profit at its institutional banking and markets division to $1.12 billion for the year ended June 30, due to a slump in trading revenue.
Citi analysts said CBA’s cash profit result was slightly below consensus estimates,but is unlikely to put too much pressure on the recent share price rally.
“A lack of lending growth, continued NIM (net interest margin) headwinds and no discernible slowing in underlying cost growth is likely to keep any share price rises in check,” Citi said in a note.
CBA shares gained $1.92, or 2.6 per cent, to $74.81 on Wednesday.
CBA’s other divisions all delivered cash profit growth, with its retail banking services unit – which accounts for more than half of its profit – posting a 5 per cent rise to $5.19 billion.
Its business and private banking unit reported a 4 per cent rise to $1.88 billion, while its Bankwest subsidiary – which is in the process of closing 29 branches along Australia’s east coast – reported an 18 per cent rise to $681 million.
Tighter regulatory rules around home and investor loans benefited CBA in 2017-18, with the bank reporting a five basis point rise in net interest margin to 2.15 per cent from a year earlier.
Annual cash profit at CBA’s wealth management and New Zealand operations jumped 33 per cent and 12 per cent, respectively.
Excluding the one-off items, CBA’s annual cash profit was up 3.7 per cent.
CBA will pay a final dividend of $2.31 a share, taking the full year payout to $4.31 a share.
CBA’s PROFIT DROPS
*Cash profit down 4.8pct to $9.233b
*Net profit down 6pct to $9.329b
*Total operating income $25.9b, up 2.6pct
*Final dividend up one cent to $2.31 a share, fully franked, taking the total for the full year to $4.31