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AUSTRAC and Commonwealth Bank of Australia - the love-in continues.

BIScom Subsection: 
Editorial Staff

This morning some media is abuzz with news of an AUD700m settlement between ASIC and Commonwealth Bank of Australia, sometimes known as "CommBank" and sometimes as "CBA". CBA was first out of the stocks with its press release. Then AUSTRAC released the draft Order that will be put before the Court in settlement. What jumped out?

As with any complex document, there are ways of dealing with it. One is to scan, rapidly, across the document, see what stands out, then look more deeply first at that, then at the whole document. This is a very effective way of reading judgments, for example.

But what jumped furthest out of the draft Order published today by AUSTRAC wasn't the size of the penalty and it wasn't the failings. It was the love-in between AUSTRAC and a bank that is under attack in so many directions for bad policies and mismanagement.

For example: "all times, CBA has invested in building a productive, cooperative and transparent relationship with AUSTRAC." That's nice.

How about "A is a very well-resourced and sophisticated ASX 100 company which consistently earns profit in the [thousands of millions], for example earning [an AUD9,900 million] profit after tax in the last financial year. "

Just to put the headlines that are exciting the media this morning.. if the Court accepts the agreement, CommBank will pay AUD700 million in penalties.

Here's an exercise for our readers: write down 9,900,000,000.00. Divide it by one percent.
Hint: the answer is 99,000,000. So we can round that to 100 million to make life easy and so the amount of the penalty is, broadly, seven percent of the company's pre-tax profit.

"CBA maintains approximately 1,350 branches, servicing approximately 16.6 million customers. CBA employs approximately 51,800 people." That's startling: the current population of Australia is, depending on what figures one takes, somewhere around 32 million but that does not take into account businesses. According to the Australian Business Register, there are 13,551,083 registered businesses in Australia (corporations and anyone doing business other than in their own name must be registered). So that means that there's a total population, including businesses, of around 45 million but that includes the "unbanked" for whatever reason, including age and numbers are complicated by those that have multiple banking arrangements. But, for the sake of simplicity, we'll leave it that and take it that CommBank provides banking services for about a third of the total population.

Australia is big but it's got only a handful of major centres of population. As with all countries with a large landmass but sparse population, getting banking services out to villages, etc. is a major challenge. Even so, with a population of half that of the UK, CommBank gets by with a branch network that is comparable to that of the UK's biggest (depending on the measure) high-street bank: Lloyds Banking Group has "over 1100 branches across England and Wales with over 10 million customers. " Scotland, which has a lot of empty space, has 263 branches of Bank of Scotland which, Lloyds Banking Group says, has some 28% of the banking business north of the Border.

Given the area it covers and the number of branches, the average headcount per branch is low. In large cities, CommBank has large establishments in which a large slug of those staff are based. Across the whole Lloyds Banking Group (which includes The Halifax, a former building society that, having merged with Bank of Scotland, collapsed in the global financial crisis and was the subject of a shot-gun adoption which almost sank new parent Lloyds, which had, largely, avoided the worst of the bad decisions that had caused so much harm) has a workforce of around 75,000.

In the draft judgment, it says "A is a leading provider of financial services, including retail, business and institutional banking and wealth management products and services. It is used by as many as 1 in 3 Australians as their main financial institution. "

This is where AUSTRAC has a problem - and ASIC, too. The penalty has to be meaningful. The rhetoric of the early days of the investigation needs to be dialled back. As Australians say, AUSTRAC needs to pull its head in. It has to make sure that a company that is so central to the entire financial life of the country is not cast into disarray. The very, very last thing that the Australian government could afford is a run on CommBank because it is perceived as, somehow, untrustworthy.

And that's why, after all the shouting, a handful of resignations and no individual prosecutions, given the constant drip of bad news from the Royal Commission where CommBank is coming over as a bunch of unpleasant shits to deal with, getting this case knocked on the head, paying a meaningful but very affordable penalty and no one going to jail is the reason that the judgment is a metaphorical hug.

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