The Commonwealth Bank of Australia (ASX: CBA) share price could be hurt by legal action due to CommInsure’s conduct.
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 Latest Legal Action
CBA faced a lot of heat during the Royal Commission and now it’s got to face some more legal action.
According to the Australian Financial Review, Commonwealth Bank’s insurance arm CommInsure is going to face charges from the Commonwealth Department of Public Prosecution (CDPP).
During the Royal Commission we learned that CommInsure had been using outdated medical definitions and supposedly didn’t want to change it due to commercial reasons.
CBA then announced that CommInsure faces criminal proceedings of 87 alleged contraventions of anti-hawking provisions, relating to telephone sales of Simple Life insurance products between October 2014 and December 2014.
Australia’s largest bank is trying to sell CommInsure to Hong Kong based AIA, a life insurer, for $2.375 billion – it’s not gone through yet, but that’s expected to be done by the second half of FY20.
Is The CBA Share Price A Buy?
Over the past week the CBA share price has fallen around 5%, so it’s a bit better value now. The CommInsure issue is unlikely to be a huge hit to profit, but what’s more worrying is that there could be more Royal Commission remediation charges like we saw from National Australia Bank Ltd (ASX: NAB) earlier this week.
If there’s another huge provision to come then I think CBA shares could be a little too high today. I also question the valuation considering lowering central bank interest rates puts more pressure on the CBA net interest margin.
CBA has a fully franked dividend yield of 5.5%, but this isn’t attractive enough to me to want to buy shares. I’d much rather buy reliable businesses which have a record of growing profit like the ones in the free report below.
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