UPDATE 2-Commonwealth Bank invites more claims over financial advice scandal
(Adds CEO comments, details on compensation, background)
By Swati Pandey
SYDNEY, July 3 (Reuters) - Commonwealth Bank of Australia on Thursday opened the door to a deluge of potential compensation claims over a financial planning scandal as Chief Executive Ian Narev apologised and promised a far-reaching internal review.
Such a review could cost the bank up to 2 percent of its earnings, or about A$150 million, analysts say. CBA, Australia's biggest lender by market value, has already paid A$52 million in compensation to more than 1,100 customers who lost savings in the scandal.
In his first public comments on the misconduct, Narev declined to estimate how many more customers would need to be compensated or how much the bank had provisioned for payouts, although he said any impact for investors was unlikely to be material. The bank earned A$7.6 billion last year and is on track for another record profit in 2013-14.
"Poor advice provided by some of our advisers between 2003 to 2012 caused financial loss and distress and I am truly sorry for that," Narev said in a statement, describing some CBA financial planners' conduct as "deeply disturbing".
"Over the last few weeks perhaps the most important thing we have done is replace that attitude of increasing defensiveness ... with openness. We have listened," he later told reporters at a press conference.
The internal review at CBA follows mounting political pressure on Narev to respond to community concerns about the conduct of his management of the scandal, which has tarnished the bank's reputation.
A newspaper cartoon this week depicted CBA advisers as sharks from the U.S. comedy movie "Sharknado", attacking pensioners.
Narev said the review will have independent oversight to look back at all claims by customers who felt they received wrong or misleading financial advice from 2003 until 2012.
He, however, rejected calls for tighter regulation of Australia's financial planning industry and sidestepped a Senate report recommending a high-level judicial inquiry known as a royal commission.
Finance Minister Mathias Cormann has also played down the need for a more robust inquiry, saying a government-nominated panel was already looking into reform of the financial industry. The panel is due to deliver an interim report this month.
At Wednesday's close, CBA shares had fallen 1.4 percent since the Senate report calling for the judicial inquiry was released on June 26, underperforming the benchmark A&P/ASX200 index which was down 0.2 percent over the same period.
Analysts said CBA was eager to hose down Senate calls for a judicial inquiry into allegations the bank tried to cover up the extent of the misconduct, allegations CBA has denied.
"Feels like they are trying to be more open, but I think this is being done to avoid a royal commission inquiry," said a Melbourne-based analyst who covers Australia's major banks, referring to Narev's promise of an internal review.
"I don't think the government would want a royal commission inquiry into CBA," the analyst added. He declined to be named as he was not authorised to speak to reporters about the matter.
CBA has come under scathing media criticism over its handling of the scandal, damaging its brand and reflecting broad community concerns about the power of the "Big Four" banks.
But Narev said greater regulation of the banking industry would not have prevented what happened at CBA.
"The failing such as this is not as a result of poor regulation," he told reporters.
"They are something that management has to put its hands up and take responsibility for. I understand that regulators are there to challenge us ... but I certainly don't see them as a substitute for leading an organisation ethically." ($1 = 1.0667 Australian Dollars) (Editing by Stephen Coates and Miral Fahmy)
- British Muslims blame jihadi subculture after beheading video |
- Israeli air strike kills three Hamas commanders in Gaza |
- U.S. aid workers released from Atlanta hospital after cleared of Ebola |
- Obama condemns killing of reporter, U.S. hits militants in Iraq |
- Ukraine border guards begin checks on Russian aid trucks