A new A$714m provision by the Commonwealth Bank of Australia is the latest addition to the mounting tally of bank payments for misbehaviour and law breaking.
Fines and compensation paid by banks since the financial crisis are continuing to mount, as they own up to offences ranging from overcharging to assisting terrorism.
The latest Australian figures, together with recent developments in the US, Asia and Europe, show that figure has continued to climb.
The Commonwealth Bank of Australia (CBA) said on Monday, 13 May that it had set aside a new amount of A$714 million to cover the cost of compensating banking customers for various offences. A$334 million of that is destined for customers of the bank’s aligned financial advisers, who were charged fees without being provided with services, an issue uncovered by the 2018 Hayne Royal Commission.
It was reported that the new provisions have increased the total cost of CBA’s remediation program to $2.17 billion. It quoted leading bank analyst Brett Le Mesurier of Shaw and Partners as estimating CBA could end up paying A$3 billion for recent wrongdoing – with a bill approaching A$10 billion for the four major Australian banks in total.
As well as charging fees for no service, CBA allowed its ATMs to be exploited by criminals and terrorists between 2012 and 2015.
The provision for compensation was the main force behind the drop in CBA’s reported third-quarter cash net profits compared to the previous March quarter, which was itself affected by penalties related to regulatory action over the ATM wrongdoing. Compared to the average of the September and December 2018 quarters, cash profit was down 28%.
CBA shares dropped from A$75.48 to A$73.16 on the news before recovering slightly to close on Monday at A$73.50.
A 2017 report from the Boston Consulting Group said that, around the world, banks had paid around US$321 billion in fines since the 2008 financial crisis. Some 63% of that was paid by North American banks, including a world record settlement of US$16.65 billion between the US government and the Bank of America. The total has continued to climb since then, as regulators deal with bank misbehaviour around the world. The Royal Bank of Scotland agreed in 2018 to pay US$4.9 billion to end a US probe of its sale of mortgage-backed securities.
In February 2019 a French court found the Swiss banking giant UBS guilty of helping thousands of rich clients set up undeclared accounts between 2004 and 2012 in a regulatory dodge that included coded notes. UBS was fined €3.7 billion plus an extra €800 million in damages for the French government.
After perhaps the most outrageous episode of bank law breaking, HSBC paid a US$1.9 billion fine in 2012 to avoid prosecution for allowing at least US$881 million in proceeds from the sale of illegal drugs. Prosecutors had charged that HSBC’s weak controls in Mexico and Colombia had made it the “preferred financial institution” for drug traffickers and money launderers.