CBA share slide eats into super

Since financial intelligence watchdog AUSTRAC signalled early this month that it was taking the Commonwealth Bank of Australia (CBA) to court, the bank’s shares have lost tens of billions of dollars in value.

A big chunk of that loss has been borne by retirees, either through their superannuation funds or individual investment portfolios, financial analysts say.

Australian Securities Exchange (ASX) transactions in the stock have been in a frenzy since the bank was accused of allegedly not disclosing potential money laundering activities. Those transactions appear to have occurred at some of CBA’s intelligent deposit machines (IDM).

Some analysts put the size of the share rout in the days that followed AUSTRAC’s action at $6 billion. Bank analyst David Ellis from investment firm Morningstar now estimates that figure at around $12 billion. And the stock’s price continues its free fall in the wake of Monday’s announcement of a regulatory inquiry into the bank.

Releasing details of the probe, Australian Prudential Regulation Authority (APRA) Chairman Wayne Byers said: “The Australian community’s trust in the banking system has been damaged in recent years, and CBA in particular has been negatively impacted by a number of issues that have affected the reputation of the bank.

“Given its position in the Australian financial system, it is critical that community trust is strengthened. A key objective of the inquiry will be to provide CBA with a set of recommendations for organisation and cultural change, where that is identified as being necessary.”

Morningstar’s Mr Ellis told YourLifeChoices that the bank regularly acknowledged that “superannuation funds, both self-funded and retail or industry ones, formed a large part of its investor base”.

“About 800,000 investors make up the 53 per cent of CBA stock holders who are not big institutional companies. Among those retail shareholders, there will be thousands of mums, dads and retirees who have seen the value of their investment fall this month.”

Mr Ellis said that while APRA’s inquiry – the first time the regulator has launched one of this magnitude – was welcome news, he wondered about its timing.

“APRA is the sole regulator of many banking practices and some of the questionable practices have taken place over many years. Why has it waited until now to do what it should always have been doing? Because that is their role, to monitor prudential behaviour and risk management in banks.

“I wonder if the Government was behind APRA’s decision to act now,” Mr Ellis said.

Australian Shareholders Association (ASA) board member Judith Fox has not ruled out the group raising CBA’s share price decline at the bank’s annual general meeting in November.

“We will have a discussion ahead of the meeting with CBA chairman (Catherine  Livingstone) around a number of issues that have affected the share price and thus affected the value of shareholders’ investments,” Ms Fox told YourLifeChoices yesterday.

“There are lots of self-funded retirees, both directly or through their super, who are invested in CBA.

“I have no doubt that CBA is high on their share portfolio list.”

Yesterday, the stock was trading at around $75, a dip of $12 or nearly 15 per cent off the highest point it reached in the past year.

The fact that some major shareholders waited weeks to sell their holdings possibly indicates that they are increasingly nervous that CBA will not avoid a court penalty of titanic proportions.

With 53,000 alleged breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act, each carrying a maximum fine of $18 million, the upper end of the penalty would see CBA having to pay almost $1 trillion.

While the top 20 shareholders in CBA are large, wealthy financial institutions, Australian superannuation funds could easily be the next biggest group of investors in the stock.

The top 20 shareholders account for almost 50 per cent of the stock, thus half of the share decline up until now has been wiped off their investments.

The other estimated $6 billion in lost value will be sliced off superannuation shares and smaller investors’ portfolios.

CBA’s alleged money laundering breaches came in the same month the bank announced it would make refunds to customers and staff who lost out on millions during its ‘systemic’ regulatory issues going back for years. This comes after an Australian Securities and Investment Commision (ASIC) investigation into practices the bank itself reported to the regulator.

The refunds will return a minimum of $16.7 million in superannuation payments to 36,000 staff plus millions more to deceased estates and customers sold inappropriate insurance.

Opinion: Why was the CBA allowed to betray those who trusted it?

The black stain on CBA’s yellow logo now seems like a metaphor for its blighted reputation caused by a long list of questionable practices.

And its long-running marketing campaign – ‘CommBank’ CAN – ironically reveals the potential breadth of that which the bank thought it could get away.

Growing up, the Commonwealth Bank seemed to me like the sensible, old-fashioned relative in the family. Its views and manners were outdated but it had a big, warm heart that only wanted to take good care of you. Back then, it was still government-owned.

But, oh boy, has this member quickly transformed into a black sheep since it was privatised in 1991.

The type of unconscionable behaviour of which CBA is being accused sounds more like the type of activity conducted by a Wolf on Wall Street than your local suburban bank. This iteration of the bank is far removed from the one that had your back when you took your tin money box into a branch and opened a ‘Dollarmite’ account.

Not only has the ASX’s biggest company by market value – $130 billion – allegedly failed to consider risk management and compliance with the law, thus shredding the investments of thousands of retirees, it has also admitted to ripping off many people.

Following an ASIC investigation this month, CBA has undertaken to return money it ‘systemically’ lifted from the pockets of its own employees, in the form of underpaid superannuation contributions. It’s also refunding the wallets of many to whom it sold unnecessary insurance. And the list of those who will receive refunds goes on.

Opposition Leader Bill Shorten’s longstanding calls for a royal commission into the banking sector are surely now validated.

The APRA inquiry is too little, too late … not least because it will not be probing the AUSTRAC allegations. APRA should have been monitoring the bank’s governance and compliance with regulations – like the money-laundering law – all along. That’s its job. Why did it wait for the AUSTRAC bombshell to get off its haunches?

Perhaps it is APRA which ought to be investigated, so we can understand why it has not carried out its role more thoroughly in the past.

Do you think the banks are too loosely monitored? Should CBA have been deregulated? Will you be getting a refund from CBA for an insurance policy you did not want nor need? How has the fall in CBA shares affected your retirement nest egg?


Related articles:
Will CBA scandal break the bank
CBA launches refund program
Bank bosses lose bonuses

YourLifeChoices Writers
YourLifeChoices Writers
YourLifeChoices' team of writers specialise in content that helps Australian over-50s make better decisions about wealth, health, travel and life. It's all in the name. For 22 years, we've been helping older Australians live their best lives.
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