Investors angry as CBA to pay $25m to settle BBSW action

INVESTORS have hit the Commonwealth Bank, stripping more than $3.5 billion from its market value after it warned more home loan customers were falling behind on their repayments.

INVESTORS have rounded on the Commonwealth Bank, stripping more than $3.5 billion from its market value after it warned more home loan customers were falling behind on their repayments.

And the bank, Australia’s biggest, has agreed to fork out $25 million in fines and other penalties after conceding traders attempted to manipulate a key inter-bank lending rate.

Shares in the CBA fell 2.8 per cent — their biggest single-session slide in almost three months — following the revelations on Wednesday, wiping $3.68 billion from its market value.

In a third-quarter trading update, the CBA revealed the proportion of customers falling behind on home loan repayments had climbed.

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“There has been an uptick in home loan arrears, influenced by a small number of customers experiencing difficulties with rising essential costs and limited income growth,” the bank said in a statement.

The proportion of mortgage customers who were behind by 90 days or more rose to 0.65 per cent, up from 0.59 per cent just three months earlier, the CBA said. At the end of 2015, fewer than 0.5 per cent of home loan customers were behind on their repayments by 90 days or more.

For the three months to March, the group’s net profit was about $2.3 billion, down from $2.6 billion in the same period a year earlier.

Operating expenses rose, the bank said, “due to increased provisions for regulatory-compliance project spend”.

It, like all the big banks, has been the subject of intense scrutiny amid the banking royal commission in recent months, and has also been targeted by regulators for its role in a series of recent scandals.

Shares in the CBA, under chief executive Matt Comyn, fell 2.8 per cent after the revelations on Wednesday. Picture: James Croucher

The bank announced on Wednesday it was paying $25 million to settle legal action — brought by the Australian Securities and Investments Commission — for attempts to rig the Bank Bill Swap Rate, also known as the BBSW.

National Australia Bank and ANZ have previously settled similar cases with ASIC

Those banks paid $50 million each, while Westpac has fought its case in court and is awaiting a judgment.

In January, ASIC said it was suing the CBA in the Federal Court, claiming staff at the bank traded with the intention of affecting the BBSW — an inter-bank lending rate that plays a pivotal role in the economy.

The CBA is admitting to five attempts to manipulate the rate resulting in “unconscionable conduct” in 2012.

It will pay a $5 million penalty over the breaches. The bank will also pay $15 million to a financial consumer protection fund and pay $5 million towards the costs of ASIC’s investigation and litigation.

“CBA will also acknowledge it did not have adequate policies and systems in place to monitor the trading and communications of its staff in order to prevent that conduct from occurring,” the lender said in an announcement to investors.

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