APRA releases scathing report on Commonwealth Bank, as ANZ records cash profit

A SCATHING report into CBA has slammed its ‘complacent’ culture, as Scott Morrison said it should be a wake-up call for board members across Australia. He also expects more heads to roll.

A SCATHING independent report into the troubled Commonwealth Bank has slammed the financial institution’s culture and prompted Treasurer Scott Morrison to put banking executives across the country on notice.

Mr Morrison said today the Australian Prudential Regulatory Authority’s report into the CBA’s culture was a “damning” rap sheet.

The Treasurer said he expected further heads to roll at the bank and senior executives to face financial penalties after the report found there was a “complacent” culture that was “dismissive of regulators”.

“It found there was a complacent culture, dismissive of regulators, an ineffective board that lacked zeal and failed to provide oversight, a lack of accountability and ownership of key risks by senior executives, a remuneration framework that had no bite, and that they were reactive, slow, and had under-resourced systems and processes internally,” Mr Morrison said.

“I want to stress while the CBA is a sound financial institution, and that issue is not in question, that rap sheet that I’ve just read out from APRA is damning.

“The report, I think, is required reading not only for every financial institution in this country, but, frankly, it should be the next item on the agenda of every single board meeting in this country, regardless of whether you’re a bank or not.”

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The APRA report said the CBA was ‘desensitised to failings with customers’. Picture: Hollie Adams/The Australian

APRA has put further regulations on CBA and forced it to enter into an enforceable agreement to take remedial action to fix its culture as a result of the inquiry.

The company will be forced to top up its minimum capital levels by $1 billion.

Australians had been let down “terribly” by the CBA senior executives, Mr Morrison said as he declared the report was a “wake up call” for the financial sector and “required reading” for all senior executives.

“At the end of the day, it’s up to these institutions to step up, for their board members to step up, and to ensure that they never see these things happen in their organisations again,” he said.

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CBA chief executive Matt Comyn has issued an apology to the bank’s customers and staff, regulators, shareholders and the Australian community for “letting them down”.

“We will make the necessary changes to become a better bank and we will be transparent about our progress,” Mr Comyn said in a statement.

“This includes establishing a much higher level of accountability and consequence for our actions and the impact we have on customers. This starts with me.”

Two long-time CBA board members Brian Long and Andrew Mohl announced their resignation in March as part of the “ongoing renewal” of the board.

Shadow Treasurer Chris Bowen said he saw no reason to call for the resignation of CBA chair Catherine Livingstone or other relatively new board members, but said the “damning report” was a matter for the company as a whole to deal with.

Mr Bowen said APRA’s report was more proof Treasurer Morrison and the government were wrong to delay the royal commission.

He called on Mr Morrison to personally apologies to the victims of banking misconduct.

CBA’S WIDESPREAD SENSE OF COMPLACENCY’

APRA was ordered to investigate the bank in August last year after a series of scandals including the Austrac money-laundering allegations.

Its report today comes amid ongoing revelations about banking misconduct in the Royal Commission into the financial services sector, which was launched after the APRA investigation was established.

“The report found a number of prominent cultural themes such as a widespread sense of complacency, a reactive stance in dealing with risks, being insular and not learning from experiences and mistakes,” the APRA report said.

“CBA turned a tin ear to external voices and community expectations about fair treatment,” the report said, and that the bank was “desensitised to failings with customers”.

It said the embattled bank had a “slow, legalistic and reactive, at times dismissive, culture” and “an overly collegial and collaborative working environment lessened the opportunity for constructive criticism, timely decision-making and a focus on outcomes”.

In releasing its final report of the inquiry, the Australia Prudential Regulation Authority (APRA) said the Commonwealth Bank’s framework for managing risks were “cumbersome” and senior leadership were slow to react to emerging threats.

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New Commonwealth Bank of Australia CEO Matt Comyn has a big challenge before him. Picture: James Croucher

It concluded the lender’s governance, culture and accountability frameworks and practices are in need of “considerable improvement” and applied a $1 billion add-on to the lender’s minimum capital requirement until its recommendations are addressed.

“This dulling was particularly apparent in CBA’s management of non-financial risks,” the report said.

“These risks were neither clearly understood nor owned, the frameworks for managing them were cumbersome and incomplete, and senior leadership was slow to recognise, and address, emerging threats to CBA’s reputation,” the report said.

“The consequences of this slowness were not grasped,” it said.

Treasurer Morrison called on Australians to give frontline banking staff “a break” and focus on the senior executives as the real issue.

“The CEOs, the chairs, the senior executive teams are the ones letting the teams down, not the frontline staff who I know would have been copping an earful, I suspect, from customers and others walking in,” he said.

“It’s not their fault. I’m sure they’re just as shocked and disappointed as the rest of the country. Give them a break. We need to focus where the real responsibility and accountability lies and it is in the boards.

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Former CEO Ian Narev has left the CBA after a series of scandals. Picture: James Croucher

“And this should be a wake-up call for every director in the country, particularly those who are the custodians of the savings and share holdings of Australians.

“They have been let down on this occasion, and terribly.”

CBA senior executives are likely to face penalties, including having their bonuses clawed back as a result of the inquiry.

The bank has entered into an enforceable undertaking with APRA, which will require it to report its response to the watchdog by June.

Any penalties or sanctions that those responsible will face, including what will be happening to “claw back bonuses”, will be included in the CBA’s response.

Mr Morrison said it was an “appropriate” response. APRA will oversee the CBA’s response and any other oversight measures put in place, he said.

Treasurer Scott Morrison said the report was a wake-up call for every director in the country. Picture: Kym Smith

Mr Morrison said the government had already taken a series of actions to crackdown on banking misconduct, including harsher penalties for financial crimes which double existing jail terms.

Opposition leader Bill Shorten told radio this morning the CBA needed to be better but took aim at the Turnbull Government for only allocating 12 months to the royal commission into Australia’s banks.

Mr Shorten also condemned the government’s corporate tax cuts, which would give the banks a $17 billion tax cut.

He also questioned why chief executives were not grilled at the royal commission.

CBA said it will implement all 35 recommendations of the report.

CBA BOSS TO FORGO BONUS

CBA CEO Matt Comyn announced he will give up his 2018 short term bonus in the wake of the APRA report.

“I was already hearing from customers, some of whom had come up to me in the street to share some of their anger and frustration about what they were seeing in an organisation that they had known, banked with, and in some cases long term shareholders,” he said

“I formed a view then it would just be inappropriate given those circumstances to accept a short term incentive.”

“I apologise to the Bank’s customers and staff, our regulators, our shareholders and the Australian community for letting them down.

“We will make the necessary changes to become a better bank and we will be transparent about our progress. This includes establishing a much higher level of accountability and consequence for our actions and the impact we have on customers. This starts with me.”

Earlier, ANZ announced a 16 per cent fall in first-half cash profit to $2.88 billion.

Cash profit from continuing operations rose 4.1 per cent to $3.49 billion, but total cash profit for the six months to March 31 fell largely because of a previously disclosed loss on the divestment of two wealth businesses. ANZ held its interim dividend flat at 80 cents, fully franked.

Originally published as APRA releases scathing report on Commonwealth Bank, as ANZ records cash profit