Commonwealth Bank of Australia Chief Executive Officer Ian Narev just delivered the lender’s eighth consecutive record profit. Few seem to care.
Its A$9.88 billion ($7.8 billion) cash profit for the 2017 financial year has been completely overshadowed by allegations from the nation’s financial crime agency that the bank breached money-laundering laws more than 50,000 times and failed to monitor the activities of drug syndicates even after being alerted by police.
Narev opened a packed press conference Wednesday with a 10-minute presentation highlighting the bumper profit, increased dividend, improved customer satisfaction — and a pointed reference to the bank being Australia’s biggest taxpayer. Yet the questions that followed were all about the lawsuit.
Had he offered to resign? Had the chairman asked him to step down? Is the culture at the bank rotten? Did the bank make money from the alleged money laundering? Did staff look the other way due to profit incentives? Why hadn’t shareholders been told earlier? Why had it taken so long to notice drug gangs stuffing automated deposit machines with cash? Was the bank funding terrorists?
“I welcome those questions,’’ Narev said as the cameras flashed.
A day earlier, he and other senior managers were stripped of their short-term incentive bonuses over the scandal. In 2016, for Narev that was A$2.86 million.
Despite profit beating expectations, the share reaction was muted. Commonwealth Bank closed 0.6 percent higher compared with a 0.7 percent gain in the wider financial index. The stock has lost about 4 percent since the suit was filed on Aug. 3.
This is the third major public-relations scandal Narev, 50, has faced during his almost six years in the job. The bank has paid A$29 million in compensation to customers who were allegedly given poor financial advice, and has faced accusations it wrongly failed to honor insurance claims to sick clients. A Deloitte report earlier this year cleared the bank of any “systemic’’ problems in the latter case.
After being sharply criticized previously for failing to answer allegations quickly, Commonwealth Bank decided this time around that openness and a degree of humility is its best policy.
“We made mistakes,’’ Narev said, adding that while there were some questions he couldn’t answer for fear of jeopardizing legal proceedings, he intended to be as open as possible with the public. “We’re not going to say every problem has been fixed.’’
The gist of his response: No, the bank isn’t funding terrorists. No, it hasn’t made any profit from the alleged money laundering. No, there isn’t any evidence of deliberate intent. Yes, reporting processes and compliance procedures will all be reviewed. The bank only learned the full details of the allegations when the suit was filed last week. And any discussions he’s had with the chairman about his future will remain private.
It remains to be seen whether Narev’s composed performance during the almost one-hour barrage will be enough to ward off the threats to his job and further inquiries into the banking sector as a whole. One thing for sure is it’s already having an impact on investor sentiment.
“We’ve had a series of these scandals now,’’ Sean Fenton, a director at Tribeca Investment Partners in Sydney, said in an interview with Bloomberg Television. “I don’t think anyone would say that Ian Narev is not doing a great job driving the profit line of the bank, but both the board and senior management need to look at themselves in how they are setting the culture.’’
Tribeca has no plans to change its underweight position on Commonwealth Bank shares, despite the sterling profit figures. “It’s a risk you don’t need to take with a bank that’s a bit more expensive than the others,’’ Fenton said.