Commonwealth Bank's Jekyll and Hyde routine

Under normal circumstances Commonwealth Bank boss Ian Narev would be confidently basking in the bank’s glory of a record profit result, but its latest was marred by another scandal, this one topping the previous ones. The scandals have had a cumulative effect.

It was why Narev adopted a subdued demeanour when he fronted the investment community, pre-empting a barrage of questions with the comment: “Obviously the Commonwealth Bank’s had a lot of attention over the last few days for not great reasons, for reasons that don’t reflect well on the bank, or on me.”

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Narev: CBA made ‘mistakes’

Commonwealth Bank chief executive Ian Narev says the bank has ‘made mistakes’ relating to alleged breaches of anti-money laundering and counter-terrorism financing laws.

From a pure numbers basis, the bank is a well-run profit machine, beating market forecasts to post a record profit of almost $10 billion. It maintained margins, relied less on mortgage brokers and was able to demonstrate that asset quality is improving and bad debts are falling. Even its loan growth is coming from the right areas.

But behind the numbers, the scandals keep coming, which suggests it has serious control flaws.

The latest scandal relates to allegations by Austrac that CBA breached anti-money laundering and counter-terrorism laws. In some cases it enabled criminals to create fake names, which enabled drug dealers, organised crime syndicates and terrorists launder and transfer money overseas.

At the end of the day, CBA is a Jekyll and Hyde.

Velocity Trade banking analyst Brett Le Mesurier says from a sales and credit risk management perspective, the bank seems to have the right balance, but it seems to allocate insufficient resources to overseeing the broader risks the bank undertakes.

Narev, for his part, managed to keep the spin going, on the one hand, admitting to mistakes, but then rattling off improvements in customer satisfaction surveys, people and culture surveys and the success of the bank’s Speak Up policy for whistleblowers.

But given what we know, including the treatment of some whistleblowers, it is hard to reconcile the surveys with reality.

For the past year CBA has been batting off a scandal in its life insurance division, exposed after its former chief medical officer spoke out, which resulted in a parliamentary inquiry, an investigation by the corporate regulator and a broader investigation of the $44 billion industry.

Narev confirmed it was in discussions with potential buyers to sell the life insurance business, but he felt compelled to make it clear that the strategic review had been put in place “quite a long time ago” well before the media coverage.

The brutal reality is the life insurance business is making a small profit, $34 million in 2017, after being squeezed by rising claims and increasing pressure to pay out claims to avoid further media scrutiny.

The point is, the bank might make stellar profits, but there comes a time when Jekyll and Hyde need to work themselves out before they destroy each other.

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