Today CBA reported half -year cash NPAT of $4.735M (statutory NPAT of $4,895M), after $375M provision for civil penalty re AUSTRAC.
Reasons for this LARGE provision IMO are strategic and presentational.
1. Without making a provision of this size the half year result would be NPAT in excess of $5B (annualised $10B) and that would be a tremendous difference in media (and public) headline terms, eg consider
.. Bank beats $10,000,000,000 profit
.. Commonwealth profit soars [put this against stories like ASX Shares Fall - Superannuants hurt, Property Slump hurts mum and dad investors]
.. Commonwealth rakes in $10Billion while serious allegations remain
There is a lot of difference between a bit less than a big round number and a bit more than that number!
2. The big provision also indicates publicly that the Bank takes its compliance requirements very seriously, gives recognition to AUSTRAC and the Court that it respects their position and authority, and extends and underlines its mea culpa statements (all good when the story and headlines and media and court action and negotiation follow).
The case itself, and Commonwealth Bank's response have included:
... In December, Commonwealth Bank signalled it won't fight the regulator on 91 allegations that it failed to detect suspicious deposits made through its ATMs and it will also admit to 52 claims that it did not properly monitor customers.
But remember that it is poor systems, inaction, delayed action, and multiple (admittedly 53k) instances of the same undetected system error that is the case being prosecuted against CBA, not any allegation of active and knowingly money laundering.
So the $375M provision seems an awfully high number for me.
Even CBA seems to think so IMO - its release says (underlining is mine):
"The Group believes this to be a reliable estimate of the level of penalty that a Court may impose. This takes into account currently available information, including legal advice received by the Group in relation to AUSTRAC’s claims."
Now, none of this above can be shown to be incorrect, but it sounds weak to justify the large provision.
IMO the final penalty (or penalties) are likely to be closer to one-tenth of the provision than the provision - let's check back on this when finalised.
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