The Australian Securities and Investments Commission (ASIC) continues its investigation into Australia and New Zealand Banking Group (ASX: ANZ) over potential manipulation of the Bank Bill Swap Rate (BBSW) over a period from 2007-2013.
As I covered in my article back in November, the history of Australian banks over the past few years reads as little more than a long list of breaches and investigations by corporate watchdogs.
Recent allegations in Fairfax media that top traders can be paid $5-10 million a year also raise some questions over salaries, with that figure coming quite close to ANZ CEO Michael Smith's $10.44 million pay-check in 2014.
While ANZ has suspended on full pay the seven traders under investigation, the company was also quick to point out that 'no determination has been made by ANZ regarding any individual staff member' and that its own inquiry is ongoing and 'may take some time to complete'.
Some investors must surely be wondering just what impact of all these scandals will have on bank earnings – and the answer, unfortunately, is not much.
In addition to any fines which may be imposed upon a company by ASIC, the cost of reparations to customers is often an insignificant percentage of a bank's overall earnings.
Commonwealth Bank of Australia (ASX: CBA) paid an estimated $270 million in its settlement over the Storm Financial collapse in 2012, 3.8% of the company's $7 billion earnings for that year.
Any payments ANZ may have to make are likely to be equally insignificant, with the company earning $7.3 billion in 2014.
While these payments are enough to erode most, if not all of the miniscule growth banks work so hard to achieve, they are one-off expenses and ultimately have little effect on continued earnings growth.
There is potential for gradual, cumulative effects thanks to customers changing banks; however continued research shows customers exhibit a lot of loyalty to their banks and unless they have been personally wronged, changes are unlikely.
It's also possible that changes to regulations and internal procedures – leading to more conservative business practices – in response to breaches may modestly impair future growth, but again the segments of the banks found in breach contribute such a small percentage of overall profit that changes are likely to be insignificant.
Reassured that their shares are not at risk of significant downgrades, investors may be looking to snap up some bargains in the banking sector.
Before you do that however, there's a few things you should know. Find out more in our special report, which we're offering FREE to all readers!
