Catherine Livingstone says sorry to CBA investors

Catherine Livingstone has apologised to shareholders over the bank’s money-laundering scandal.

Catherine Livingstone and Ian Narev at CBA’s annual meeting in Sydney yesterday.

Commonwealth Bank chairman Catherine Livingstone has apologised to shareholders for the “deficiency and consequence” of the damage caused by the lender’s money-laundering scandal, as the nation’s largest bank avoided a “second strike” on its remuneration report.

As CBA continues to fight legal and regulatory fires on several fronts, including a prudential investigation into its culture and governance, a class action purported to be the largest in Australian history and a probe by the corporate watchdog, Ms Livingstone said she was confident the board did not break continuous disclosure obligations in relation to the scandal that emerged three months ago.

At the same time, she told shareholders the bank was well advanced in its search for a new chief executive, with current boss Ian Narev planning to step down by mid-next year.

While the board learned in 2015 that the bank had failed to send thousands of transaction reports to anti-money-laundering agency Austrac, it did not know the regulator was set to launch legal action against the lender. Austrac filed claims in the Federal Court in August alleging more than 53,000 breaches of anti-money-laundering and counter-terrorism financing laws.

“Austrac’s statement of claim filed on that day included matters of which the bank had no prior knowledge,” Ms Livingstone told shareholders at the bank’s annual general meeting in Sydney yesterday. She stressed there was no ­allegations any banker had “knowingly” contributed to the ­issues raised by allegations, or been accused of misconduct.

“Nonetheless, it is clear that the bank was deficient in aspects of its compliance with Austrac’s regulations, and it is equally clear that this has damaged our reputation with customers, shareholders, regulators and gov­ernment. As chairman, and on behalf of the board, I apologise sincerely for this deficiency and its consequence.”

Ms Livingstone said the bank’s defence of the Austrac claims would be made public. It is due in the middle of next month.

The bank avoided a second strike, as 91 per cent of shareholders endorsed the company’s remuneration plan. About 50 per cent of shareholders voted down last year’s executive salary plan, which was criticised for moving towards “soft” targets over financial targets. It also had gifted the departing chief executive a $12.3 million salary during a year in which the bank was engulfed in a life insurance scandal for using outdated definitions to deny payouts for heart attacks.

This year short-term bonuses paid to Mr Narev and his 11 direct executive reports were cut to zero due to the bank’s money-laundering scandal. Directors, including Ms Livingstone, also suffered a 20 per cent cut in their fees.

A share price for the CBA

The overhaul of remuneration structures also appears to have played well with institutional ­investors.

“A lot of our non-open proxy holders did vote against the report, which might reflect my own feeling that the Commonwealth Bank missed an opportunity to redo remuneration — simplifying it and streamlining it,” Australian Shareholders’ Association representative Sonja Davie said.

Mr Narev’s pay dropped to about 60 times the average wage, from about 100 times last year, Ms Davie said.

CBA director Andrew Mohl withstood a protest vote against his re-election, which was supported by 84 per cent of proxy voters. A minority of investors had lodged their displeasure with Mr Mohl, a member of CBA’s risk committee, for the bank’s handling of its dispute with Austrac.

The election of new director Rob Whitfield, a former Westpac executive, to the CBA board was endorsed by 98 per cent of shareholders. “I look forward to contributing to the good governance and culture required for the bank to rebuild,” Mr Whitfield said.

In the wake of the Austrac allegations, Ms Livingstone flagged the retirement of Mr Narev in the first half of 2018. Mr Whitfield, who is helping to find a replacement, has been seen by many as a suitable candidate.

“I can assure you that Rob is ­absolutely committed as a non-executive director of the Commonwealth Bank,” Ms Living­stone said, when asked whether Mr Whitfield was a candidate.

CBA was “well advanced” in its search for a replacement, and was considering internal and external candidates locally and globally, Ms Livingstone said. Among those considered to be in the mix are Westpac institutional head Lyn Cobley, SocietyOne chief executive Jason Yetton as well as Westpac’s retail boss George Frazis. Former NSW premier and current NAB institutional boss Mike Baird is also regarded as a potential local candidate.

Mr Narev, in his last AGM appearance as boss, said the bank had sometimes listened poorly and been too bureaucratic. “As chief executive I take responsibility for that,” he said. “We need to be more diligent about some of our policies and processes.

In relation to financial crimes controls, Mr Narev said “it was clear we did not reach the standards we should have”.

Ms Livingstone said there were “absolutely” operational failures at the bank’s life insurance division CommInsure.

“We could have done better. Definitions were not as contemporary as they could have been,” she said. “If one client has a bad ­experience that’s one too many.”

Since the Austrac claims went public, Ms Livingstone has presided over a shake-up of the bank’s board. Non-executive board directors Harrison Young and Launa Inman have retired after the shareholder meeting. Mr Mohl will step down next year.

CBA’s head of wealth management, Annabel Spring, has also flagged her exit.

Ms Livingstone said the bank would be looking at further board appointments over the next year.

She said the bank was paying closer attention at how bad news flowed throughout the business.

“We’re looking constantly, constantly at the way information flows to the board. The challenge is in making sure it’s not overwhelming and that it’s not too little,” Ms Livingstone said.