The Commonwealth Bank of Australia (ASX: CBA) share price could be hit today after announcing additional Royal Commission costs.
Commonwealth Bank of Australia or CBA is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
CBA’s new costs
The Royal Commission has caused damage to CBA’s reputation and it’s damaging CBA’s bottom line more and more as time goes on.
Yesterday afternoon CBA announced the following:
Program and customer remediation costs
The bank is adding a $100 million provision to cover the higher-than-expected total cost of the financial crime compliance Program of Action and other ongoing compliance & remediation programs.
Indemnity provision
A sum of $200 million will be held as an indemnity provision for CBA’s wealth management and mortgage broking business for historical remediation and service fee issues.
Transaction and separation costs
The sale of CFSGAM is going to create a $1.5 billion post-tax gain net of transaction costs. CBA said it will recognise transaction & separation costs of $144 million.
It will also recognise a further $55 million for transaction and separation costs in relation to the sale of Comminsure Life, which is in addition to the $194 million previously recognised.
Insurance recoveries
Fortunately, it wasn’t all bad news for CBA shareholders.
The bank said it has received a total of $135 million thanks to professional indemnity insurance recoveries related to the civil penalty and legal costs experienced in FY18. This will be recognised by CBA as a benefit within operating expenses.
Is the CBA share price a buy?
The CBA share price has fallen around 15% since the start of 2018. The Royal Commission (and underlying issues) have caused a lot of damage to CBA shareholders and CBA employees.
It’s currently offering a fully franked dividend yield of 6.3%. This is an attractive dividend yield, but only if CBA keeps paying the same dividend.
All of these costs and the housing market could cause an inescapable hit to profit and the dividend.
Therefore, it might be worth waiting until the entire Royal Commission process and its subsequent consequences are known. Until then, it could be a better idea to look at proven profit growers like the 3 shares in the free report below.
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