Commonwealth Bank of Australia (CBA) today provides an update on insurance recoveries, program and customer remediation costs, and transaction and separation costs that will impact CBA’s financial results for the half year ended 31 December 2018. All amounts quoted are pre-tax unless otherwise stated.
A total of $135 million has been received by CBA as a result of professional indemnity insurance recoveries related to the civil penalty and legal costs incurred in the 2018 financial year. This will be recognised as a benefit within operating expenses.
Program and customer remediation costs
A provision of $100 million will be recognised to cover the higher than expected total cost of the multi-year financial crime compliance Program of Action and other ongoing compliance and remediation programs. This is in addition to provisions taken for the Program of Action in the year ended 30 June 2018, and previously announced remediation provisions for Credit Card Plus, Personal Loan Protection and Home Loan Protection insurance1.
Pending the demerger of CBA’s wealth management and mortgage broking businesses (NewCo), $200 million will be held as an indemnity provision for historical NewCo-related remediation issues and associated program costs, including ongoing service fees charged by aligned advisors of the Group2.
Transaction and separation costs (recognised as non-cash items from discontinued operations)
As previously announced, the sale of CFSGAM to Mitsubishi UFJ Trust and Banking Corporation is expected to complete mid calendar year 2019, subject to regulatory approvals, and will be classified as discontinued operations at 31 December 2018. The estimated total proceeds for this transaction imply a post-tax gain on sale of $1.5 billion (net of transaction costs). Under Australian Accounting Standards the Group is at this time required to recognise a provision for transaction and separation costs associated with the disposal, in the half year ended 31 December 2018, of $144 million.
The Group will also recognise a further $55 million provision for transaction and separation costs in relation to the sale of CommInsure Life, largely due to the revised completion date. This is in addition to the $194 million transaction and separation costs associated with the disposal of both CommInsure Life and Sovereign recognised in the year ended 30 June 2018.
1 ASX Announcement, Commonwealth Bank provides an update on customer and employee review and remediation actions, 14 August 2017 (https://www.asx.com.au/asxpdf/20170814/pdf/43ld8779y5tc2v.pdf); and the Commonwealth Bank Media Release, CommBank to no longer offer credit card plus and personal loan protection insurance; loan insurance refund program to be implemented, 7 March 2018 (https://www.commbank.com.au/guidance/newsroom/cci-and-pl-program-201803.html).
2 This is in addition to the $270 million in compensation (including interest) already paid by CBA to customers who were provided with poor quality advice or charged fees where service was not provided as per ASX Announcement, CBA takes further action to improve its wealth business, 9 October 2018 (https://www.asx.com.au/asxpdf/20181009/pdf/43z2mwlk51381b.pdf)