CBA: Commonwealth Bank announces $1.2 billion loss related to royal commission findings

Australia’s biggest bank has revealed the massive costs related to trying to win back trust after being dragged over the coals during the royal commission.

Commonwealth Bank has become the latest major lender to reveal massive losses as a result of the scandals exposed in the Hayne royal commission.

Australia’s biggest bank will spend $918 million to try to win back the trust of its customers as well as an additional $358 million on risk and compliance programs related to failings heard during the inquiry.

The expenses combine for a $1.2 billion hit in the bank’s books, dragging its full-year profit down by 4.7 per cent to $8.49 billion — $10 million lower than analysts had expected.

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“The key takeaways from my perspective are we’re making very good progress on becoming a simpler and better bank,” CBA chief executive Matt Comyn said.

Mr Comyn said the economy remained subdued but noted an improvement in the housing market, including improved clearance rates, stabilisation of prices in Sydney and Melbourne, and slightly higher housing credit growth.

“Ultimately, household income growth will be key, as will the links to consumer and business sentiment in the coming years,” he said.

The royal commission pressured the major lenders to restructure wealth management divisions, and the Commonwealth Bank announced on Wednesday it would exit the last of its aligned financial advice businesses.

The bank had already significantly reduced its exposure to financial advice, saying it will stop providing licensee services through Financial Wisdom by June and help it close.

Mr Comyn says the bank wants to be ‘simpler and better’. Picture: AAP Image/Joel Carrett

CBA has also announced its entry into the buy now, pay later sector with a $US100 million ($A148 million) investment in Swedish fintech Klarna Holding AB.

Klarna, which is valued at $8.1 billion and has 60 million customers, will partner with CBA to compete with the likes of Afterpay and ZipCo in Australia and New Zealand.

Shares in CBA were worth $79.80 before the open of markets on Wednesday, having shed more than 3.0 per cent this week already amid US-China trade drama.

Westpac chief Brian Hartzer says the fallout from the royal commission has been costly. Picture: Hollie Adams/The Australian

Earlier in the year, Westpac revealed the effects of the royal commission to its books when it reported a 22 per cent slide in its half-year profit.

The major lender said it had put aside $617 million to cover customer refunds and other costs related to the fallout of the widespread inquiry into the sector.

It too restructured its wealth management divisions that resulted in a direct loss of $136 million.

“The past six months has been a turning point,” chief executive Brian Hartzer said.

“We are proactively addressing legacy issues while improving our products and services to ensure they deliver the right customer outcomes.

“We’re exiting personal financial advice to focus on the parts of our wealth business where we have a competitive advantage, and we are delivering significant cost savings by simplifying our business.”

At the time, Mr Hartzer admitted the country’s second largest bank had a lot of work to do to win back customers’ trust, saying Westpac had made changes to improve how it handles complaints while removing teller incentives.

The company said the controversies exposed in the royal commission had cost Westpac $1.45 billion over the past three years.

“We are centralising oversight of all remediation programs and have more than 400 employees working directly on remediation projects to make refunds to customers as quickly as possible,” the chief executive said.

CBA’s PROFIT DROPS

• Cash profit down 4.7 per cent to $8.49b

• Net profit down 8.1 per cent to $8.57b

• Total operating income $24.4b, down 2.0 per cent

• Final dividend flat at $2.31 a share, fully franked, taking the total for the full year to $4.31

— with AAP

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