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The infringement notice and A$100,000 fine served to Commonwealth Bank of Australia (CBA) by market regulator the Australian Securities and Investments Commission (ASIC) was due to the bank not promptly disclosing to the market an increase in its bad debt provisions during its A$2 billion December capital raising. According to ASIC, the bank delayed a material disclosure to the markets by over four hours during a critical time, and some investors were apparently told about the impairment before the stock exchange. The disclosure related to a A$600m increase in bad debt provisions. The mistake derailed the capital raising process and caused a rift between CBA and Merrill Lynch, the investment bank handling the capital raising.
CBA has tenaciously defended itself against charges of wrongdoing, noting that the payment is not an admission of wrongdoing and claiming that the delay in disclosure was the fault of Merrill Lynch. CBA chief executive Ralph Norris made complaints to the top management of Merrill Lynch's parent company in the wake of the affair. This month Merrill Lynch's long-time head of Australia left his position, although there was no indication that this was directly related to the controversy surrounding the CBA capital raising. Furthermore, following Ralph Norris' claim that the increase in bad debt was immaterial as revenue growth had offset the impairment, CBA has been criticized by financial analysts for trivializing the importance of the breach in disclosure.
CBA has recently had problems with other governance issues, in particular in relation to its dealing with failed investment company Storm Financial, where in many cases retail investors and small savers lost significant parts or all of their investments. The current tumult illustrates the importance for financial institutions of carefully managing their media profile and public relations. The capital raising in December was priced at A$27, while CBA shares closed at A$54.97 on Wednesday October 14 following the infringement notice, so from a purely financial point of view the bank has done well. From a public relations and reputational point of view, however, there may be some improvements to be made.
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