In a new report, Morningstar analysts noted that while the Commonwealth Bank’s “record settlement” of $700 million represented almost double the amount it had set aside for it, the resolution was also “removing some earnings uncertainty”.
AUSTRAC brought charges against CBA in August last year for contravening the Anti-Money Laundering and Counter-Terrorism Financing Act 2006(AML/CTF Act). The two parties resolved the civil proceedings on Monday.
“We are treating the AUD 700 million AUSTRAC provision as a significant item and excluding it from our unchanged fiscal 2018 cash profit of $9.9 billion,” the report said.
“The financial impact of the provision is immaterial to our total valuation or to the AUD 123 billion market capitalisation.”
Of Australia’s four major banks, CBA is the largest and benefits from a wide economic moat, the Morningstar report said.
The hefty penalty notwithstanding, the major bank’s earnings would be supported by the “high quality franchise, strong market positions and reinvigorated senior management”.
“Despite the seriousness of the AUSTRA allegations and fines, we do not think they will significantly impact future profits.”
The research house also pointed out that CBA would have to ensure legal and regulatory requirements were complied “without compromise”, alongside other major banks that were also under the spotlight.
CBA have already spent over $400 million on AML/CTF compliance over the last eight years.
The report also pointed the finger at “senior management” who were accountable for the systems error that made up most of the anti-money laundering breaches.
But Morningstar also expressed confidence in the major bank’s ability to recover from its recent regulatory and management-related scandals.
“We believe the bank will navigate through this latest management mis-step and continue to benefit from strong competitive advantages.”
