Is Commonwealth Bank a ‘No’ for Investment?

Commonwealth Bank of Australia (ASX: CBA)

CBA Details

Facing Legal Challenges: Commonwealth was earlier seen to be committed to high standards of corporate governance and transparency. In 2017, Commonwealth Bank earned income of $26 billion and they served 16.6 million customers and returned 75% of cash profits to their shareholders while paying $3.9 billion of taxes. Statutory net profit after taxes for 2017 increased by 8% as compared to last year. There was an increase of 9 cents in dividend which is an increase of 2% as compared to last year. CBA’s CET1 (Common Equity Tier 1) ratio on an internationally comparable level was 15.6% which maintained their position in the top quartile of international peer bank capital rankings. They have also built a good digital banking ecosystem which resulted into 54% of all the transactions processed digitally. They achieved 41.8% of cost-to-income ratio which was down 60 bps and also, they spent 53% of their investment on productivity and growth initiatives.

Lately, CBA filed a response to the civil proceedings which were commenced by AUSTRAC relating to Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF) in which CBA behaved in a defensive manner and regretted to fail to comply with AML/CTF obligations. CBA recently received one more amended statement of claims from AUSTRAC which increased the total number of alleged contraventions from approximately 53,700 to 53,800 and in respect of this CBA will also file an amended defence. It was also reported that CBA accounts were hacked by a convicted terrorist who tried to move funds out of Australia to Beirut, Lebanon, and AUSTRAC alleged that bank was too slow to inform about such suspicious activity. CBA is now pleading some allegations and it would be interesting to see whether CBA will be required to manage multiple allegations or would slip through a single bucket of claims. This entire debacle has impacted CBA’s risk management framework and corporate culture, while management will continue to monitor CBA’s competitive position in its core retail market.

On the other hand, CBA has made significant changes in strengthening their policies, processes and systems relating to obligation under the AML/CTF Act through their Program of Action. CBA has recently introduced daily limits for IDMs (Intelligent Deposit Machines) deposits for CBA cards which are associated with a personal account. The bank is committed to strengthen the financial crimes compliance and is closely working with regulators across all the jurisdictions in which CBA operates to fight financial crime.
 

Performance Highlights (Source: Company Reports)
 
CBA shares have had a very mixed year with banking sector challenges and legal proceedings, so we recommend investors to be cautious and think before investing in the stock that trades at the current price of $80.44


CBA Daily Chart (Source: Thomson Reuters)

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