The fallout from the Royal Commission inquiry continues for Commonwealth Bank of Australia (CBA) amid accusations that its board was fully aware of problems but failed to deal with them appropriately.
Regulators have been particularly critical of the board’s decision to not take control of the situation when former Chair David Turner refused its request to return funds after a series of alleged mismanagements.
Several new revelations emerged when the Commission inquiry received a release of minutes from CBA senior level executives that detailed some of the struggles that have now come to light.
At one point, the CBA board became so disillusioned with how Turner was carrying out his role that it demanded that he hand back 40% of his annual fees. The board felt that he had not hit enough targets to deserve this level of pay. However, Turner flatly refused, and the board simply moved on and did not press the issue again. It then kept this information secret from its shareholders,
This revelation seems to have stunned some regulators, who cannot believe that Turner’s actions remained quiet. Strikingly, an admission from the new CBA Chair, Catherine Livingstone, suggested that a framework was in place that only required CBA executives to hand back any of their pay if the issue was ‘risk related’ and the details became public.
While the banking industry has found itself in turmoil regarding consumer trust quickly eroding, it had hoped that it would now be able to start turning this around. RBA Governor Philip Lowe said this week that he had little desire to make any strong changes to the economy until customers once again felt comfortable with the banks. The latest news about Turner is likely to set this back further.
Some problems that the Royal Commission faces presently is that it does not believe that is has a full set of minutes to use as evidence and that some of the information that it is currently taking as verbatim is probably missing some detail. This means that it is unlikely to have a full picture and may now have a higher level of distrust regarding anything that it hears about the dealings from CBA’s defense.
Livingstone also defended her decision to replace CBA’s former CEO, Ian Narev, with Matt Comyn, who previously fronted its retail banking division. She said that it was ‘almost impossible’ to find someone of the right caliber from an external source who had ‘not been involved in some regulatory event.’
When the inquiry asked Livingstone why CBA did not disclose events regarding Turner to shareholders in its end-of-year financial reports, she said: ‘I suppose I didn’t consider at the time including it, and maybe I should have.’
The board decided to ask Turner to return some of his pay after a report from the Australian Prudential Regulatory Authority (APRA) criticized the way that the board was operating and relayed concerns about potential financial mismanagement. Turner rejected the demand on the basis that he disagreed with the fundamentals of the report.
The inquiry is set to continue, with Westpac also under the spotlight for the amount of compensation funding that it put aside for charging customers for a service that they never received.