CBA in focus (CBA, MCP)
The banks continued to weigh on the broader market today led by CBA which traded down to a low of $73.63 before closing at $74.41, off by -1.42%, detracting 6.06 index points from the ASX 200.
AUSTRAC have now started legal proceedings and the Federal Court today gave CBA until mid-December to file its defense while AUSTRAC will have until March 16 to respond. Interestingly, CBA has retained Herbert Smith Freehills, the Lawyers that defended Tabcorp in the only other Federal Court case on anti money laundering obligations. In that case, Tabcorp was found to have contravened the law - which culminated in a fine of more than $45 million.
In that case, Tabcorp was found guilty of 108 contraventions of the act, while CBA is being scrutinized for 174 contraventions. I’ve read a lot of potential interpretations of the possible fine, ranging from $18m to telephone numbers of many billions and that seems to be the issue. A lack of clarity and inability to pinpoint the likely outcome, particularly given that any contravention in Australia where funds were sent overseas, may constitute a contravention in another jurisdiction.
While Australian regulators have historically been more lenient, international regulators have been less so. Examples here include an $US8.9 billion fine paid by BNP Paribas in 2014, a $US2 billion fine paid by JP Morgan Chase and a $US1.9 billion fine paid by HSBC in 2012. By CBA taking Freehills on board, it seems they are banking on a similar sort of outcome. At the end of the day, this is likely to be a negotiated settlement, and reflecting on Tabcorp’s $45m hit – which is the biggest fine in civil history, that represented about 18% of 1 years earnings for that year. If the same formula is applied to CBA, this would result in a fine of around $2.5bn, making it by far the biggest potential penalty ever imposed.
The outcome won’t be known for a number of years, and will be settled well after Ian Narev has left the building (and is hopefully running the ARU as per some rumours I’ve heard!). Clearly it has been a turbulent time for CBA - with the stock dropping more than $10 a share, or in mkt cap terms - down $17bn. We own CBA in both the MM Growth Portfolio and the MM Income Portfolio, and today we added to our holding in the Income Portfolio by 2.5% around $74.00 per share.
Commonwealth Bank (CBA) Daily Chart
On the broader market today, the Utilities sector saw most pain partially offset by strength in the Real Estate stocks that did report well in aggregate over the past few weeks - an overall range of +/- 34 points, a high of 5724, a low of 5690 and a close of 5754, off -22pts or -0.39%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
A reminder for those with interest in the MCP Master Income Trust with the priority offer closing by the end of this week. Should you still have interest after viewing the prospectus, there are two ways to apply for units. The first is through the Broker Firm Offer where a priority allocation may be received if your broker is listed in the prospectus. If this is not the case, James and his team through Shaw and Partners can work with you to establish an account at Shaw, allowing them to make a bid on your behalf for this offer, and other regular offers that they have access to in the future.
Alternatively, access to the General Offer is available through the link below. https://sharebpo.7g.com.au/OnlineApplication.aspx?ID=C65E7E4637248431D8597C6954881FC041594812
….and more information including our views are available on the MM website
Have a great night
The Market Matters Team
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