Commonwealth Bank’s Share Price Rises Due to APRA Inquiry

Commonwealth Bank [ASX: CBA] closed at $73.17 yesterday afternoon, up from its opening price of $71.82.

CBA has had a bit of a bad run recently. The bank has been caught up in a series of scandals which are currently being investigated, including providing poor financial advice to their customers, as reported by Business Insider.

They are also being prosecuted over breaches to anti-money laundering regulations identified by Australia’s financial intelligence and regulatory agency.

Most recently, the bank has been investigated by the Australian Prudential Regulation Authority (APRA). This came about after a number of incidents as mentioned above.

The aim of the Prudential Inquiry was to examine the frameworks and practices of CBA in relation to governance, culture and accountability.

Why did Commonwealth’s share price rise?

The share price increased following an announcement confirming that Commonwealth will implement all of the recommendations contained in the Report of Prudential Inquiry, released yesterday by APRA.

The recommendations included:

  • Strengthening the governance and management of non-financial risks at the board and executive level.
  • Changes to remuneration policies and practices to ensure greater accountability for risk, compliance and customer outcomes.
  • Strengthening capability in operational risk and compliance throughout the group supported by positive, transparent regulatory relationships.
  • Renewed focus on listening to customers and improved systems and procedures for reporting and resolving customer complaints.
  • Empowering staff with the tools and processes they need to better manage risk including embedding three lines of accountability as a consistent operating model.

In a conference call between investors and analysts, Commonwealth Bank of Australia Chairman, Catherine Livingstone said that addressing the findings of the APRA report are a key focus for the board and management.

Changes have been underway throughout 2017 at Board and operational levels, and have continued this year, helping to rebuild customer and community trust. This includes the process of Board renewal. Together they represent a significant change program and the APRA Report provides us with a clear roadmap for the hard work still ahead of us.

What can we expect to see from Commonwealth Bank?

Commonwealth has stated that they will provide a public update on its agreed remediation plan in early July. The estimated financial cost of this program for the 2019 financial year will be disclosed in CBA’s annual results announcement on 8 August 2018.

CBA is also set to release its Third Quarter Trading Update on Wednesday, 9 May 2018.

It will be interesting to see if they really can turn things around and rebuild trust with stakeholders, or whether this is all just a publicity stunt — only time will tell.

Dannielle Rawlings

For, Markets & Money

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