Hayne Commission continues to haunt the Big Four banks

The aftermath of the Banking Royal Commission (also called the Hayne Commission) continues to spill over, almost two years after it concluded.

After much soul-searching and lessons learnt in these last two years, the big four banks are still grappling with various write-down in profits related to the findings from that inquiry. 

Here we take a look at how the inquiry has financially impacted the big four banks over the last two years.

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

ANZ Bank announced yesterday that its second half 2020 cash profit would be impacted by a charge of $528 million as a result of large notable items. 

One of the items includes remediation to customers, which makes up $188 million of the total figure. This charge relates to remediation programs the bank had conducted in response to recommendations made by the commission.

Earlier this year, ANZ had already paid a $10 million penalty for wrongly charging 69,000 customers more than $3 million in fees.

The figures announced yesterday will only add to the misery.

Westpac Banking Corp (ASX: WBC)

Earlier this month, the Federal Court ordered Westpac to pay a $1.3 billion penalty for its breaches of the Anti-Money Laundering and Counter-Terrorism Financing Acts. The penalty was the highest ever civil penalty in Australian history, reflecting the seriousness of internal control failures at Westpac.

The compliance failures were levelled by AUSTRAC, a government financial intelligence agency set up to monitor financial transactions.

In response, Westpac admitted to the court that it failed to report 19.6 million international transactions within 10 days. The bank also admitted to 48 instances where it didn’t perform adequate customer due diligence, and failure to flag 262 customers for making transactions that fitted the pattern of child exploitation.

It remains to be seen whether more write-down will be reported in the future as the bank recently reshuffled its management team. 

National Australia Bank Ltd (ASX: NAB)

Last week, NAB also announced a hit to profits totalling $450 million. This includes payment of refunds to customers of $245 million, and a whopping $128 million in backdated payments to remediate staff underpayment.

This figure is on top of the $297 million in penalties the bank has already paid since 2018.

NAB revealed 12 months ago that it was investigating a payroll mistake responsible for short-changing 730 NAB employees of about AU$850,000. That number had grown to 1,500 staff and $1.3 million by June, but it was a surprise for the market to hear the number had now increased to $128 million. 

NAB was also accused of charging customers fees without providing them with services, as well as providing its wealth clients with non-compliant advice.

The bank recently announced a startling forecast that the cost of compensating customers could eventually be as high as $2.2billion, which it already reported as provisions during the half year reporting.

Commonwealth Bank of Australia (ASX: CBA)

In 2018, the prudential regulator APRA slammed CBA’s board and senior management in a scathing report that chided the bank for its widespread “complacency and excessive complexity and insularity”. The regulator also identified serious failures in the bank’s internal controls to prevent anti-money laundering and terrorism-related activities.

CBA agreed to pay AU$700 million in penalties, as well as agreeing to carry an additional $1 billion in regulatory capital and to undertake a comprehensive review of its operations. 

Earlier this year, CBA denied reports that it was facing fines in the billions of dollars for selling superannuation products through bank tellers. That saga is still ongoing and the bank may still be imposed a fine for that breach.

So what lies ahead for the big four banks?

With all that’s happening, it’s clear that FY20 will not be the best year for banking sector investors. Many banks will be throwing everything but the kitchen sink when they close the books for FY20, by including other write-down charges in a year that’s already lost. Investors may need to be patient and focus on the FY21 results.

More reading

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• Top brokers name 3 ASX shares to buy today
• 5 things to watch on the ASX 200 on Wednesday
• ANZ (ASX:ANZ) share price on watch after revealing $528 million earnings hit
• Douugh and Ioupay were among the most traded shares on the ASX last week

Motley Fool contributor dsunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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