(Adds CEO comments, details on compensation, background)
By Swati Pandey
SYDNEY, July 3 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
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
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
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
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)