Life Insurance

Commonwealth Bank delivers $9.9b profit, flags sale of life insurance business


Commonwealth Bank may sell its life insurance business, the bank has revealed as it reported a full-year profit of $9.88 billion and raised dividends for shareholders.

After the bank was last week hit by explosive claims it breached anti-money laundering laws, CBA on Wednesday said cash earnings rose 4.6 per cent in the year to June 30, beating the market’s expectations. 


CBA execs lose short-term bonus

Short-term bonuses for Commonwealth Bank executives have been cut for the year as a result of the bank’s alleged breaches of anti-money laundering laws.

As rival banks retreat from wealth management, CBA said it was considering selling CommInsure, which was previously found to have wrongly knocked back some customer claims on the basis of outdated medical definitions.

“We are in discussions with third parties in relation to their potential interest in our life insurance businesses in Australia and New Zealand,” the bank said.

“The outcome of those discussions is uncertain. While the discussions may lead to the divestment of those businesses, we will also consider a full range of alternatives, including retaining the businesses, reinsurance arrangements or other strategic options.”

The profit comes as the bank is being embroiled in allegations it repeatedly breached anti-money laundering laws. This has triggered a slump in its share price and raised questions about the tenure of chief executive Ian Narev – though the board said it had “full confidence” in Mr Narev on Tuesday.

CBA’s financial filings gave little new information about the legal case, saying what it could say was limited while the matter was before a court.

Providing detailed information about the matter “would be highly likely to be prejudicial to our position,” CBA said.

Mr Narev said the bank’s profit reflected its focus on “customer satisfaction, innovation and financial strength,” as he painted a mixed picture of the Australian economy.

“Headline indicators show that the Australian economy remains sound overall, albeit variable,” Mr Narev said.

“However, many households are concerned about job security, wages and the cost of living. Cyclical investment in mining and construction has underpinned our economy for some time.”

CBA’s operating income grew 3.8 per cent, ahead of operating expenses of 2.3 per cent, helped by volume growth in its flagship home lending business.

About one in four home loans is with the CBA, and it said volume growth in the mortgage market, business lending and deposits had supported its interest income.

The lender is also benefiting from very low bad debt costs, as low interest rates have meant relatively few customers are failing to repay loans. Impaired loans as a share of its total loans fell to 0.15 per cent, from 0.19 per cent a year ago.

Profits in its largest division, retail banking, jumped 9 per cent to $4.96 billion, while earnings in business banking were up 8 per cent to $1.64 billion.

Despite recent rises in some mortgage interest rates CBA said its net interest margin – which compares its cost of funds with what it charges for loans – dipped from 2.14 to 2.11 per cent over the year.

In looking to sell CommInsure, CBA is following National Australia Bank and ANZ Bank in cutting its presence in wealth management, a move that analysts have said would make sense for CBA because it has no clear advantage in insurance. Insurance income fell 1 per cent to $786 million in the year.

CommInsure was investigated by the corporate watchdog after wrongly denying some claims, with findings handed down this year. While the watchdog said it had not broken the law, it said using out-of-date medical definitions “short of what the community reasonably expects, and can result in poor outcomes for consumers”.

It will increase the final dividend by 7c to $2.30 a share, which will be fully franked and paid on 20 September.

CBA has the most work to do to satisfy regulations forcing banks  to be better capitalised, and it reported core-equity tier 1 capital of 10.1 per cent of its risk weighted assets. It will offer a 1.5 per cent discount on new shares issued under its dividend reinvestment plan – a move designed to help it raise capital at a faster pace.



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