Major addresses 28% profit drop

Customer remediation has taken a toll, but job cuts ruled out by CEO

Major addresses 28% profit drop


By Madison Utley

After releasing its third quarter financial results yesterday morning, the CEO and CFO of Commonwealth Bank of Australia (CBA) have unpacked the factors that led to a 28% decrease in profit, and spoken to what the figure means for the future.

Even excluding the $714m in customer remediation provisions, profit was down 9% due to a 1% increase in underlying expenses and a 4% reduction in operating income.

According to CBA CEO Matt Comyn, the decline was due to a combination of certain products no longer being offered, plus fees and pricing changing in a number of core banking products.

Seasonal considerations were also a factor, with the bank estimating the financial impact of two fewer days at a loss of approximately $100m.

“On an annualised basis, the total income foregone by these changes is $415m. In the nine months to March, we’ve already recognised $180m of this impact, with an estimated $275m to be recognised in the financial year 2019,” Comyn explained.  

The total remediation spent over the last six years was quoted at just under $2.2bn.

There are approximately 400 people working on refunding customers, and between $200m and $500m is expected to be refunded this calendar year.

According to Alan Docherty, CBA CFO, the “deferred” demerger of the wealth management and mortgage broking businesses will continue to be indefinitely postponed as the bank gives priority to its remediation efforts.

“[CBA] is engaging with greater frequency with our regulators across a range of matters, and working to ensure these are dealt with as efficiently and comprehensively as possible,” said Comyn.

The CEO also addressed the rumour that CBA is planning a significant cutback in both its branch network and its workforce, saying that the reporting was “certainly a surprise” to him.  

Beyond the employees impacted by the divestments already announced, Comyn did note the “elevated numbers of employees” dealing with remediation and regulatory or compliance projects at the bank.

“We expect those to reduce over time,” Comyn said.

Additionally, he noted,  “Over time, both the number and size of [CBA’s] branches has reduced and is likely to continue to reduce.”

“But, we aren’t contemplating any sort of large-scale branch reduction in the near term,” he clarified.

When asked for an update on the royal commission recommendations, Comyn said, “I’d say we’ve completed half a dozen or so, and we’re on track with the ones that we had previously provided before my appearance at the House of Representatives in March. 

"I anticipate giving a further update at the full-year results in August," he concluded. 

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