Widespread corruption in Australia’s banking system is coming to light – and this is just the beginning

by | 24 Apr, 2018

Australia’s Commonwealth Bank is among the ‘big 4’ institutions under investigation

The Australian government is considering extending the mandate of a Royal Commission into Aussie bank practices for another year, after facing scrutiny from the public and their political opponents.

Australia’s ‘big 4’ banks (Westpac, ANZ, NAB, CBA) are in the firing line from the Commission due to thousands of complaints from upset customers who claimed they were duped into suspect investments and taken advantage of by aggressive financial advisers representing the firms.

Earlier in the week the Royal Commission inquiry (which has been active since March) also heard that advisers from Commonwealth Bank of Australia charged dead clients for financial advice, in one case for up to 10 years.

Aussie Prime Minister Malcolm Turnbull has been credited for overseeing a jobs boom in Australia during his tenure, but has been widely criticised by opponents for taking so long to establish the Commission into banking practices. His hesitation to do so prompted questions over whether the government had knowledge of just how bad the situation was in the financial sector and were reluctant to deal with the fallout which would end up with fingers pointed towards them, undermining their position. 

The situation bears some resemblance to the behaviour of banks across the US and Europe in the buildup to the 2007/8 financial crisis, particularly in terms of the selling of toxic financial products to investors.

Few people have been held to account for their actions during that period, but Australia seems to be bearing down harder on their own banks bad behaviour. It is a thorny issue however, particularly because Aussie banks are among the most profitable in the world, and vital to the prosperity of the Australian economy. Reuters reported that Australian banks earned profit margins of 36.4% in the June quarter of 2017. Authorities will have to walk a thin line between getting revenge on behalf of customers who were wronged, and not overly- restricting the activities of the big 4, who also account for 80% of the nations lending market.

The investigation has rattled public confidence in both the government and banking sector. The share prices of the ‘big 4’ have fallen by around -15% each over the past year, giving investors holding onto them little to celebrate.

Weak bank stocks were part of the reason why Australia’s key ASX200 index hugely underperformed its peers across Asia over the last year, with the index practically unchanged in point terms since this time last year.

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ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.
Brokerage services are provided by the following:
US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here.
India account traded securities are provided by SIC Stocks & Services PVT Ltd. SIC does not make any personal recommendations to buy, sell or otherwise deal in investments. Investors make their own investment decisions. The services and securities provided by SIC may not be suitable for all customers and, if you have any doubts, you should seek advice from an independent financial adviser. For more information and disclaimers, click here.

 

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