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APRA inquiry a 'good outcome' for CBA

Stuart Condie  |  29 Aug 2017Text size  Decrease  Increase  |  

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SYDNEY - [AAP] Commonwealth Bank (ASX: CBA) shareholders should welcome APRA's inquiry into the lender as a balanced and non-political intervention that can restore the shine to a tarnished brand, a leading analyst says.

Morningstar analyst David Ellis says the Australian Prudential Regulatory Authority inquiry into CBA's governance, culture and accountability represents a good outcome for the country's largest bank following a series of scandals.

Recent allegations the lender breached money laundering and terrorism funding laws were followed by the announcement mid-August that CBA chief executive Ian Narev will retire this financial year.

Mr Ellis says Mr Narev's eventual replacement will get an opportunity to change perceptions of the brand.

"We expect the eventual outcome and fallout of the inquiry to be a pivotal point in rebuilding the bank's tarnished brand and reputation following several embarrassing and high-profile missteps," Mr Ellis wrote in a note to investors.

"Regulating culture and behaviour in an organisation with around 50,000 staff is easier said than done and it will be up to the board, new CEO, and senior management to develop, nurture and reward appropriate staff behaviour."

Commonwealth Bank shares were down another $1.28 to sit at $75.40 at midday on Tuesday and have now lost 10.5 per cent since the federal government's financial intelligence unit launched civil proceedings in Federal Court on August 3.

Nonetheless, Mr Ellis has maintained a $85 fair value estimate on the stock.

He cautioned that proceedings could last for some time but said a proactive new chief executive could decide to settle out of court.

"Given the seriousness of the cultural issues, Commonwealth Bank is more likely to move away from recent practice and choose a new CEO from outside the bank," Mr Ellis said.

Treasurer Scott Morrison on Monday welcomed APRA's announcement of its inquiry, as the federal government continues to resist calls from the Labor opposition for a wide-ranging Royal Commission into the banking industry.

Mr Ellis warned that APRA's inquiry will do nothing to diminish the chances of a Royal Commission if Labor wins the next federal election, which is expected to be held between August 2018 and May 2019.

He said APRA could slap a financial penalty on CBA but that was unlikely.

 

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