Yesterday’s close of AU$73.98 sees Commonwealth Bank Australia [ASX:CBA] shares approach new 52 week lows. This was after the share opened Wednesday morning 2.75% lower than its Tuesday close, as it began trading ex-dividend.
Commonwealth Bank’s current 52 week low is A$73.20, which it reached on 8 September 2017.
Why the share price downtrend?
Australia’s largest bank has been the focal point of the Royal Commission into banking (an investigation which was established on 14 December last year).
The Royal Commission is said to have stemmed from outrage against Commonwealth Bank for the financial planning scandal in 2013. The scandal was centred on CBA’s sales culture being the driving force for poor advice offered between 2003 and 2012, causing millions in financial losses for clients.
The bank was plagued by reports of terrorism financing and money laundering scandals. It admitted to over 53,000 breaches of statutory disclosure laws between 2012 and 2015. And they’re currently facing accusations of interest rate rigging.
CBA reached an all-time high back in April last year of AU$87.72, but has since seen a myriad of fluctuations between AU$70–85.
As the Royal Commission continues, concerns are rising over the extent of the fines the Commonwealth Bank may have to pay. With each money laundering breach potentially attracting fines of up to AU$18 million, this could lead to a maximum eye-watering fine of AU$960 billion.
A more reasonable fine was estimated by Morgan Stanley analyst Richard Wiles, putting the damage anywhere between AU$50 million to AU$2.5 billion, based on similar penalties faced by banks internationally since 2009.
The AU$75 million tax-payer funded Royal Commission is expected to report the damages by the first of February 2019.
Looking forward for CBA
Volatility lies ahead as the bank defends itself from the Royal Commission. CBA also missed the mark by 2% in its half-yearly profit expectations, with fingers pointed at rising expenses as the reason behind the drop. This increase in expenses included AU$375 million in provisions for the potential result of the AUSTRAC proceedings.
Apart from the provision, costs remained flat with total revenue up 5.5%. With the rising price of mortgages for investment properties, CBA margins are expected to expand.
In what would be his last results presentation, chief executive of CBA Ian Narev stated:
‘We recognise, and regret, that these costs arise from our failure to meet some standards that we should have.’
The banking chief also pointed at favourable economic trends. Yet remained wary of the potential risks resulting from cautious consumer spending and business investments in the economy. As well as uncertainty over interest rate increases in 2018.
Editor, Markets and Money
Junior Analyst, Markets and Money
PS: The trend for CBA isn’t encouraging, but there is money to be made, or saved, on a falling stock price. That’s why we’ve written a report about a particular group of stocks that are in a dire state, and what you can look out for to avoid losing money (or even make some). The report is titled ‘5 Fatal Stocks’. You can check it out here.