CBA "fixing mistakes" as it prepares for massive cost of money laundering fines

Commonwealth Bank (ASX: CBA) has set aside more than half a billion dollars to cover potential costs from allegations it breached anti-money laundering and terrorism funding laws.

Outgoing CEO Ian Narev, who delivered his final set of results before departing, says the bank has made provision for a $375 million fine along with a further $200 million for "currently known" regulatory, compliance and remediation costs, which include the banking royal commission.

"We have focused a great deal of effort on fixing our mistakes, and becoming a better bank," Narev says.

"We recognise, and regret, that these costs arise from our failure to meet some standards that we should have."

Narev says the $375 million provision for fines was a reliable estimate of the potential civil penalty related to the Australian Transaction Reports and Analysis Centre (AUSTRAC) allegations that CBA breached reporting rules on more than 53,000 potentially suspicious transactions.

Analysts have estimated the final costs could be more than $1 billion.

Narev, who will be replaced in April by Matt Comyn, had his bonuses cut to zero in the wake of the scandal along with other senior executives.

The provisions dragged down CBA's half year results by 1.9 per cent to $4.74 billion, while pro forma underlying cash profit excluding the provision rose 5.8 per cent to $5.11 billion. This narrowly missed analyst expectations of $5.2 billion.

Statutory profit for the six months to December 31 was flat at $4.906 billion, while cash profit, including the life insurance business that CBA has agreed to sell to AIA for $3.8 billion, dropped 0.7 per cent to $4.871 billion.

CBA also says its net interest margin rose 0.06 percentage points over the half year to 2.16 per cent because of a reduction in borrowers taking on interest-only loans.

As APRA limits on high-risk mortgage lending kicks in, CBA also says owner-occupier lending rose 7.5 per cent in the 12 months to December 31, while investor lending slowed to just 0.5 per cent in the same period.


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