The Commonwealth Bank of Australia (ASX: CBA) share price could hit volatility this morning after the bank flagged that it has agreed to pay a $700 million penalty in compensation for its failure to abide by anti-money laundering laws as enforced by the regulator AUSTRAC.
On the one hand the fine is less than some market observers expected, but on the other hand $700 million is a material amount even for a bank that printed a profit of $2.3 billion for the quarter ending March 31 2018.
Investors will hope that CBA's management can treat the cost of the fine as a one-off that can be put aside and supported by debt in order to avoid an impact on the sacred cow of dividends. If nothing else the market will now have certainty as to the cost of the AML failings debacle and the bank's new CEO will want to draw a line under the affair.
CBA also recently agreed to pay up to $25 million in penalties after reaching an agreement with the corporate regulator ASIC over allegations it artificially manipulated the benchmark inter-bank lending rate know as BBSW.
To say Australian bankers are in hot water currently is an understatement, with the Royal Commission still running, while last week saw perhaps the biggest shock of all with the competition regulator the ACCC reportedly bringing criminal charges against an Australia & New Zealand Banking Group (ASX: ANZ) staff member and several other investment banks.
For investors the bigger picture over bank shares includes the weakening housing market and likelihood that the Royal Commission will result in tighter lending standards that could see banks' loan books and credit growth rates shrinking.
As such it's a space I'd watch from the side lines for now despite the seemingly attractive dividends.
