The fallout from Australia’s latest banking scandal — allegations that Commonwealth Bank may have ignored money-laundering regulations — could spur serious pain for the sector.
Commonwealth Bank of Australia (CBA), the largest bank Down Under, saw its shares tumble on Friday, shedding nearly 4 percent by the close.
That followed the Australian government’s financial intelligence and regulatory agency on Thursday saying it was seeking civil penalties against CBA for “serious and systemic non-compliance” with anti-money laundering laws.
In a statement, CBA said it was reviewing the claim and would file a statement of defense.
Australia’s banks were already under a cloud.
Late last year, the chiefs of Australia’s big four banks made mea culpas to a Parliamentary inquiry over issues including insurance scandals, interest-rate rigging and outsized bonuses.
The opposition Labor party had pushed for a Royal Commission, or a public investigation authorized by an act of Parliament, into the sector, but banks have so far avoided that level of inquiry.
That may change, an analyst said.
“It’s going to be harder and harder to resist the calls for a Royal Commission in Australia and Commonwealth Bank will have been a big contributor to that overall cynicism towards the banks,” Brian Johnson, an Australia banking analyst at CLSA, told CNBC’s “Street Signs” on Friday.
Royal Commissions have previously dug deep.
In June, an Australian Royal Commission into institutional responses to sexual abuse of children found more than 4,000 allegations against Catholic authorities were made over 35 years. The inquiry resulted in charges against a top Vatican cardinal, George Pell, over historical sexual assault allegations.
Pell, the highest-ranked Vatican official to ever be charged in connection with sexual abuse, has denied the accusations.
The government has already used public disdain for the banking sector to its advantage.
In May, the government decided to use the banks’ large profits to help balance the budget, imposing a levy of 6 basis points on banks with liabilities in excess of 100 billion Australian dollars ($79.63 billion) in an attempt to raise more than A$6 billion over the next four years.
CLSA’s Johnson said he was negative on the sector as a whole and on CBA’s stock.
“When banks have delivered great returns for a long period of time, they start to do strategically challenging things, which destroys their returns in the longer term,” he said.
“CommBank trades at a significant premium to the other banks because it’s so profitable. And the way you make excess profit is obviously to do things slightly differently to the other banks. Perhaps this is part of that kind of ethos in the organization.”