Commonwealth Bank reviews institutional bank and markets amid ANZ-AOFM ASIC probe

The regulatory issues hanging over ANZ have spurred rival Commonwealth Bank to conduct a detailed review of its own institutional banking and markets arm.

CBA chief executive Matt Comyn said the bank had proactively initiated a review into conduct, governance and risk management within its institutional and markets business. Picture: NCA NewsWire / Nikki Short

The regulatory issues hanging over ANZ have spurred rival Commonwealth Bank to conduct a detailed review of its own institutional banking and markets arm, amid concerns at the top of the sector over any potential fallout from ANZ’s government bond trading scandal.

CBA chief executive Matt Comyn said the bank had proactively initiated a review into conduct, governance and risk management within its institutional and markets business, after revelations of the corporate regulator’s probe into ANZ came to light.

Speaking after handing down a $9.83bn cash profit result, Mr Comyn told The Australian CBA’s review had not turned up any concerning behaviour relating to how the bank handled government bond mandates.

“No issues have been identified at this stage,” he said.

“It’s ongoing. We would regularly review the controls and risk management processes … across all of our businesses.”

The Australian Securities & Investments Commission is investigating how ANZ’s institutional banking division and markets team managed a $14bn bond placement for the government last year.

The regulator is probing allegations of irregular trading by ANZ’s team in the government bonds and futures markets as part of a placement, which saw pricing move unfavourably for the government.

ANZ worked alongside CBA, Deutsche Bank and National Australia Bank as joint lead managers on the transaction in question.

The Australian understands CBA’s institutional banking and markets review has involved it scrutinising frontline staff who may have been connected to any government bond deals.

This includes deals with the Australian Office of Financial Management, which oversees bonds issuance on behalf of the federal government and some agencies, as well as any state debt deals.

CBA has also looked at the compliance teams within the bank’s markets division as well as broader risk teams across the group to see if any issues were flagged.

Investors and analysts are watching to see if ASIC takes action against ANZ. Macquarie analysts have warned ANZ could face up to $780m in penalties if found guilty of unconscionable conduct.

CBA group executive institutional banking and markets Andrew Hinchliff.

CBA’s institutional and markets business has been the group’s quiet achiever, with deposits well in excess of its lending operations feeding capital back into the business.

The Andrew Hinchliff-led division was sitting on just $88bn in loans, against a total $154bn in deposits when CBA ruled off its full year on June 30.

Lending was down across institutional banking and markets, which banks some of Australia’s biggest companies, sliding 9.2 per cent from $96.8bn in June last year.

The operation delivered almost $1.1bn in cash earnings for the period, up on the $1.05bn in fiscal 2023.

Mr Hinchliff, who joined CBA in 2018, was paid $4.29m last year, while head of business banking Mike Vacy Lyle was paid $4.46m.

Analysts are closely watching the performance of CBA’s loans across its divisions as the economy slows.

E & P analyst Azib Khan noted CBA’s second-half credit impairment charge was “a little lower than expected” but he highlighted its asset quality was deteriorating as interest rates stayed higher for longer.

“The deterioration appears to be particularly concentrated in the business banking and NZ divisions,” he said.

Asked about asset quality in its corporate and business banking book, CBA outlined four troubled exposures that sat predominantly in the commercial property sector.

But CBA’s finance chief Alan Docherty said he was “very comfortable” with the security on those exposures, and the bank had low expectations of booking losses against those loans.

CBA improved its expectations for the construction and agriculture sectors, with the latter benefiting from drought-averting conditions. The bank also noted fierce competitive activity in business banking, particularly for larger loans and deposits, with the bank opting to sidestep some of that action.

Mr Comyn said he was pleased with the business bank’s lending margins, given hotter competition for corporate customers, where CBA “let go” about $7bn in deals mostly due to pricing.