If you thought the record $700 million fine slapped on the Commonwealth Bank of Australia (ASX: CBA) to settle its money laundering violations with the government was a whopper, you probably would gasp at the potential fine Australia and New Zealand Banking Group (ASX: ANZ) may have to cough up.
Shareholders should be counting the cost of the string of bad behaviour from our banks as their share prices stage a tentative recovery after taking a beating earlier this year with the sector trading in the black even as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index slipped 0.2% into the red.
But ANZ shareholders could be $1.3 billion poorer off if it is found guilty of the two criminal cartel charges that were brought on by the Australian Competition and Consumer Commission (ACCC), according to an analysis by Morgans.
The maximum fine the bank could be hit with for the offences of making of a cartel and giving effect to a cartel under the Competition and Consumer Act (2010) is around $2.6 billion, but as with Commbank's case and many others, we know companies breaking the law won't get hit with anything nearly as high.
This has prompted Morgans to look at other similar cases to find a precedence that could help investors quantify a more probable penalty.
"Using the ACCC v Yazaki Corporation case (final penalty handed down in May 2018) as a guide, the penalty for ANZ may end up being ~50% of the statutory maximum applicable," said the broker.
"If such is the case, then ANZ may face a penalty of $1.3bn if it is found guilty of the two offences."
Commbank's fine was the biggest in history paid by an Australian corporation. ANZ's could be nearly twice as large and the more aggressive stance by Australian regulators towards corporate bad behaviour means any penalty will need to cause sufficient pain to the bank without causing it to collapse.
ANZ can stomach such a big fine but it remains to be seen if shareholders will suffer from the indigestion. After all, the news of Commbank's 700 million lashings actually triggered a relief rally in its share price as investors were bracing themselves for a worse outcome.
I am not sure if ANZ will get the same reaction as I don't think the impact of the potential fine has been fully priced into its share price – at least not yet.
Brokers, including Morgans, haven't adjusted their forecasts either to provision for this outcome as it's probably a little too early to declare ANZ guilty given that management is defending itself.
The bank may have more to lose by pleading guilty early too as its group treasurer, Rick Moscati, is also charged with the offences. You can't jail companies, but you can executives if found guilty of what for now are just allegations.
But if ANZ has to cough up a big fine, it will probably come out of the cash it has set aside for its share buyback, according to Morgans.
The $1.3 billion represents 21% of the bank's buyback budget. Investors won't be happy.
The other two big banks, Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB), appear to be less tainted by the string of banking scandals buffeting the sector.
Let's hope it stays that way, although those close to retirement can probably do without the uncertainties clouding the banking sector.
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