Tag: CBA

ASIC Update On CBA’s Financial Advice Compensation Programme

ASIC today released KordaMentha Forensic’s first report on past activities by Commonwealth Financial Planning Limited (CFPL) and Financial Wisdom Limited (FWL) to compensate clients, and to identify high-risk advisers and affected customers.

The report confirms the inconsistency and deficiencies of an original $52 million compensation scheme. These shortcomings, which disadvantaged some customers, led to ASIC imposing new Australian financial services (AFS) licence conditions on CFPL and FWL in 2014 .

The failings are being rectified through KordaMentha Forensic’s review. Following the release of today’s report, the first of three to be delivered to ASIC, Commonwealth Bank (CBA) will contact approximately 2740 customers to offer them up to $5000 to have their advice assessment reviewed and to seek independent advice.

KordaMentha Forensic’s second report will assess whether CFPL and FWL had a reasonable basis for identifying the clients and advisers for the original compensation scheme. If KordaMentha Forensic finds that other clients or advisers should have been captured, CFPL and FWL will be required to rectify this.

KordaMentha Forensic’s third report will provide an assessment of this work and CFPL and FWL’s compliance with the licence condition program.

Purpose and key findings of Comparison Report

KordaMentha Forensic’s Comparison Report reviews and compares CFPL and FWL’s processes for reviewing and communicating with two groups of clients:

  • Clients who received advice from banned former CFPL advisers Don Nguyen and Anthony Awkar, and who were remediated under a compensation program known as Project Hartnett; and
  • Certain clients of further former CFPL and FWL advisers, many of whom were offered compensation as a result of adviser misconduct, in a separate compensation program.

KordaMentha Forensic found three inconsistencies between the compensation programs which CFPL and FWL are required to rectify for affected clients:

  1. Initial letter: In Project Hartnett, clients received a letter indicating that the advice they received was being investigated and that CFPL would contact them with the outcome. However, most clients assessed in the Compensation Program did not receive this letter. For those clients who did receive a letter, it was often inconsistent with the Project Hartnett letters (for example, some letters did not include the adviser’s name or alert the client that the licensee was investigating concerns it had with the adviser)
  2.  Offer of up to $5000 for independent advice: In Project Hartnett, clients who received advice which was implemented were generally (but not in all cases) sent a letter which included an offer of up to $5000 for independent professional advice to help them assess the validity of the licensee’s review and any compensation offer. In the Compensation Program, the offer was discretionary – and no clients were given this offer
  3. Close-out letter: In Project Hartnett, clients who received the initial letter indicating there was an investigation being conducted into the advice provided to them, but who were determined not to be entitled to compensation, received a letter stating this result of the file review. However, in the Compensation Program, while some clients received a letter offering compensation or advising they were not entitled to compensation, most clients reviewed received no such communication. As a result they were not given an opportunity to participate in the review and decision making processes as to whether they were entitled to compensation

Following this report, the licensees will contact approximately 2740 clients offering them up to $5000 to have their financial advice independently reviewed and the other options available under the licence conditions. The licensees will also write to a further 1590 clients informing them that a review of their file found no evidence that they had received advice, but if that is not correct, the clients will be offered $5000 assistance and all the options available under the licence conditions.

KordaMentha Forensic’s work in preparation for this report also revealed that 86 clients under Project Hartnett did not receive the $5000 offer, and some clients did not receive an ‘Initial Letter’ explaining that their advice was being reviewed. CBA has given a commitment to ASIC that these clients will now be treated consistently with other clients under the licence conditions, including the $5000 offer.

CBA Offers NFC Payments via Android Smartphones

Australia’s Commonwealth Bank has launched a new version of its CommBank app, which it says is Australia’s most popular, with 3.2 million unique users and approx 2.35 million of those logging in each week to securely manage everyday banking and payments, as reported in iTWire today.

The newly updated app introduces various new features today, alongside ‘innovations’ included in the app last year which the bank says is ‘resonating’ with its customers.

Lisa Frazier, the Commonwealth Bank’s Executive GM of Digital Channels, said: “Our evolution of CommBank app is focused on delivering a simple and convenient mobile experience with relevant and valuable features that exceed user expectations. CommBank app’s most recent features Cardless Cash, Lock & Limit, and International Money Transfers are proving popular.

“Cardless Cash has helped around 370,000 customers withdraw cash without their card at an ATM or enable a loved one to withdraw cash in an emergency. Lock & Limit has given our customers peace of mind, with over 360,000 transactional locks and limits set within the app.

Over 35,000 credit cards have been temporarily locked whilst their owners determine if they’ve lost or simply misplaced their card, while PIN changes and card activations remain the favourite self-service features in the app.”

But that’s what has already been introduced, so what’s new in the Commbank app zoo?

Tap & Pay for Android, that’s what. From today, this feature will be available on Android phones with NFC capability running Android OS Kitkat 4.4 and above. It uses Host Card Emulation (HCE) technology to enable Tap & Pay payments ‘on the most popular Android handsets’ and replaces the need to purchase a physical PayTag to make payments with a smartphone.

The CommBank App’s download page at Google Play notes that: “Payments from eligible transaction accounts only, not available for credit cards at this time)” and notes that you can “Also set up a widget for quick access to Tap & Pay”.

Angus Sullivan, who is another Executive GM at Commbank but in the Consumer Finance Payments & Strategy Division said: “Customer demand for convenient mobile payment technologies continues and we are focused on innovative payment features which deliver on this. Today, we are providing Android customers with a real mobile wallet solution which simplifies payments on-the-go.”

Andrew Cartwright, the SVP and Country Manager of MasterCard Australia said: “This collaboration between MasterCard and Commonwealth Bank places the power of mobile payment technology in the hands of more Australians. It also delivers the highest level of security for our cardholders who want a fast, easy and secure way to pay using their smartphone.

“We have seen rapid adoption of contactless payments in Australia, with more than 60 per cent of MasterCard transactions under $100 now made this way. MasterCard will continue to invest in technology that provides all Australians with a convenient and secure alternative to cash.”

The Commonwealth Bank has also banked several awards for its app, with its most recent being the Canstar Innovation Excellence 2015 award for its Cardless Cash, and Lock, Block and Limit features, getting the ‘Best’ designation, alongside the Innovative Online Banking Service in Money Magazine’s 2015 Best of the Best Innovation Awards, and finally the National iAward for Best Consumer Product.

CBA Results Suggests Momentum Slowing?

The Commonwealth Bank of Australia announced its results for the half year ended 31 December 2014 today. The Group’s statutory net profit after tax (NPAT) for the half year ended 31 December 2014 was $4,535 million, which represents an 8 per cent increase on the prior comparative period. Cash (NPAT) was $4,623 million, an increase of 8 per cent on the prior comparative period. Cash Return on Equity was 18.6 per cent. The Board declared an interim dividend of $1.98 per share – an increase of 8 per cent on 2014 interim dividend.

Revenue was up 5 per cent in subdued market conditions. The cost to income ratio improved 70 basis points to 42.2 per cent as productivity initiatives continue. Return on Equity on a cash basis was 18.6 per cent. They maintain a strong capital position – Basel III Common Equity Tier 1 (CET1) (Internationally Comparable) of 13.3 per cent.

The banks said that while some of the Group’s customers are facing challenges, this is not translating into a deterioration of credit quality. The Group is maintaining a strong balance sheet with high levels of capital and provisioning. Liquidity was $151 billion as at 31 December 2014.

Customer deposits were up $32 billion to $458 billion and represents 63 per cent of funding. During the period the Group took advantage of improving conditions in wholesale markets, issuing $18 billion of long term debt in multiple currencies.

Looking at the segmentals, the bank reported that:

  • Net interest income and other banking income both grew 6 per cent, with average interest earning assets up $49 billion to $739 billion and retail and business average interest bearing deposits up $27 billion to $432 billion;
  • Net interest margin (NIM) declined 2 basis points (to 2.12 per cent) on the prior half, reflecting competitive asset pricing, partially offset by lower wholesale funding costs;
  • Strong growth in net interest income and other banking income and a disciplined approach to expenses contributed to Retail Banking Services cash earnings growth of 12 per cent;
  • Wealth Management’s average Funds Under Administration grew by 11 per cent with 85 per cent of funds outperforming their respective three year benchmarks;
  • Cash earnings in New Zealand (excluding the impact of lower losses associated with the New Zealand earnings hedge) grew 15 per cent and in Bankwest grew 8 per cent respectively;
  • The Group’s cost to income ratio improved by 70 basis points, in large part due to the on-going productivity focus, which delivered savings of $312 million over the past twelve months;
  • The annualised ratio of loan impairment expense (LIE) to average gross loans and acceptances improved 2 basis points and 3 basis points (to 14 basis points) compared with the prior comparative period and the prior half respectively;
  • Investment in long term growth continued, with $595 million invested in a set of initiatives, including $167 million for risk and compliance related projects, with the balance invested against on-going strategic priorities;
  • Provisioning remained conservative, with total provisions of $3.9 billion, and the ratio of provisions to credit risk weighted assets at 1.25 per cent. Collective provisions included a management overlay of almost $800 million and an unchanged economic overlay;
  • CET1 (Internationally Comparable basis) was 13.3 per cent. CET 1 (APRA basis) increased 70 basis points (on the prior twelve months) to 9.2 per cent;

The Group remained one of a limited number of global banks in the ‘AA’ ratings category.

Looking at home loans, average balances increased by $24 billion or 6% on the prior comparative period to $404 billion. The growth in home loan balances was largely driven by growth in Retail Banking Services and Bankwest. There was a drop of margin of seven basis points related to home lending, reflecting intense competition and discounting in the market.

In their outlook, they highlight the importance of job creation.

The Australian economy has many of the foundations necessary to make a successful transition from its dependence on resource investment. Population growth, a vibrant construction sector, some signs of increased business investment, greater trade access supported by a lower Australian dollar and a strong banking sector are all contributing to an economy that remains the envy of most developed markets. However, the volatility of the global economy continues to undermine confidence, particularly the impact of lower commodity prices on national revenue. Weak confidence is a significant economic threat. Businesses need the certainty to invest to create jobs, and households need a greater feeling of security. That requires implementation of a coherent long term plan that clearly addresses target government debt levels and timeframes, infrastructure priorities, foreign investment, business competitiveness policies and, above all, job creation.

Overall then, whilst profit was in line with expectations, revenue growth may be slowing, and margins are under some  pressure thanks to what the bank called “competitive asset pricing” aka the battle for home loan market share.

 

Will RBA Change Rates in 2015?

Until quite recently, there was something of a consensus that in 2015 the RBA was likely to lift rates, despite  their monthly mantra about a period of interest rate stability.  Some economists have argued that falling consumer confidence, slowing wage growth, and international uncertainty were all factors which would lead to lower rates, whilst on the other hand, the falling price of fuel at the pumps, and continued investment property demand might lead to higher rates.

So, interesting then that today the Commonwealth Bank of Australia  (CBA) released a note in which they have pushed out any rate rise expectations into the first quarter of 2016. In the interim period, they say, the cash rate will most likely stay at current levels – at 2.5% – the rate it has been for well over a year now. They suggest that a cut to the current low rate is unlikely, because the falling dollar and oil prices will stop the RBA dropping rates further. Previously, the CBA had been suggesting a rise in 2015 was likely.

The CBA said, a rate cut wouldn’t necessarily help produce the confidence and the stability the RBA is seeking:

“It appears that households and business now equate rate cuts with ‘bad’ economic news.”

The bank thinks a cash rate of 3.5 per cent by the end of 2016 is quite likely.

ASIC To Monitor CBA Financial Planning Businesses

ASIC has appointed KordaMentha Forensic to examine two of the Commonwealth Bank of Australia (CBA)’s financial planning arms’ compliance with new Australian financial services licence (AFS) conditions.

KordaMentha Forensic will report regularly to ASIC the results of their review of past activities by Commonwealth Financial Planning Limited (CFPL) and Financial Wisdom Limited (FWL) to identify high-risk advisers and affected customers, and CFPL and FWL’s compliance with the new conditions.

ASIC will release the findings, and CFPL and FWL will be required to address any deficiencies identified.

ASIC imposed the conditions on CFPL and FWL – and flagged it would appoint an external compliance expert – after a scheme developed to compensate customers of former CFPL advisers was not applied consistently across all affected customers of the two businesses. This inconsistency disadvantaged some customers. The conditions include CFPL and FWL offering customers up to $5,000 to have their financial advice independently reviewed.

CBA Trading Update Solid

The CBA advised that its unaudited cash earnings for the three months ended 30 September 2014 were approximately $2.3 billion. Statutory net profit on an unaudited basis for the same period was approximately $2.4 billion, with non – cash items treated on a consistent basis to prior periods.

Overall business momentum was maintained. In home lending, focus remains on profitable growth in a competitive market, with strong new business levels balanced by higher repayment activity in a low interest rate environment. In commercial lending, system credit growth remained subdued, with the Group growing relatively strongly in priority markets. Household deposit growth continued in the quarter, with the Group growing slightly ahead of system. In Wealth Management, net flows,
investment performance and FX impacts contributed to Assets under Management growing by 3.5 per cent over the three months, notwithstanding equity markets ending the quarter lower. Insurance inforce premiums increased by 2 per cent.

Credit quality remained sound, with retail arrears flat to slightly improved and impaired assets lower at $3.1 billion. Total loan impairment expense was $198 million in the quarter (that’s around 13 basis points of the loan book), with strong provisioning levels maintained and the economic overlay unchanged.

Funding and liquidity positions remained strong, with liquid assets of $145 billion, customer deposit funding at 63 per cent and the average tenor of the wholesale funding portfolio at 3.8 years. The Group completed $12 billion of new term issuance in the quarter.

The Group’s Basel III CET1 (APRA) ratio as at 30 September 2014 was 8.6 per cent, down from 9.3 per cent at 30 June 2014. The Group’s Basel III Internationally Comparable Common Equity Tier 1 (CET1) ratio as at 30 September 2014 was 12.9 per cent.

Like the other banks, margins are under some pressure, thanks to a fall in funding costs being more than offset by competitive pricing.

The data shows CBA’s strong position and franchise, and they are well positioned to handle any change in capital rules, or other factors. We believe they are also best positioned with regards to the transition to digital channels.