CBA fined $100K for alleged breach

Australia's biggest lender on Wednesday said that while it had agreed to pay the penalty imposed by the Australian Securities and Investments Commission (ASIC), it was not an admission of liability or contravention of continuous disclosure rules under the Corporations Act.

Chief executive Ralph Norris said the bank was disappointed by ASIC's decision to issue the notice and defended itself against the regulator's allegations relating to its forecasts for loan impairment expense to gross loans and acceptances ratio for 2008/09.

At the time of the raising announced in late 2008, documentation held by the bank pointed to an expected full year loan impairment expense of around 60 basis points, with most of that charge to be booked in the first half.

But the forecast contrasted with an earlier statement in November 2008 for an annual loan impairment expense of between 40 basis points and 50 basis points.

ASIC alleged CBA had failed to notify the Australian Securities Exchange (ASX) after it became aware that the charge would rise.

"Loan impairment expense is a single line item in the group's profit and loss statement and cannot be considered in isolation," Mr Norris said in a statement on Wednesday.

"As noted in our ASX announcement at the time, we were experiencing strong volume and revenue growth which, in our view, significantly offset the forecast increase in loan impairment expense, such that the net impact on our overall profitability was not material."

ASIC said in a statement on Wednesday the increase was capable of adversely affecting CBA's forecasted full year 2008/09 net profit by between five and seven per cent.

In August this year, CBA reported a seven per cent fall in 2008/09 cash earnings to $4.415 billion and a one per cent decline in statutory net profit to $4.723 billion.

Under the chain of events that caught ASIC's eye, CBA last November notified the market that its exposure the collapses of US Investment bank Lehman Brothers, and local companies Allco Finance Group Ltd and ABC Learning Centres Ltd, would result in a full year impairment expense of between 40 and 50 basis points.

On December 16, it attempted a $2 billion raising including an institutional placement of shares at $27 each through Merrill Lynch International Australia.

That afternoon, ASIC said, Merrill Lynch canvassed major institutional shareholders about their interest in the shares and advised CBA of the outcome before the market closed.

At 1500 AEDT, CBA had become aware of credit quality analysis reflecting the changed impairment expense forecast.

ASIC said CBA was therefore obliged to immediately notify the Exchange as it was "a significant deterioration" and was "price sensitive".

The bank did not make a statement to the Exchange until around 1914 AEDT that day.

The capital raising had to be revised and replaced after some Investors complained they had not been aware the bank had changed its impairment expense forecast before buying into the placement.

CBA on December 17 terminated its share placement agreement with Merrill Lynch saying the investment bank did not inform potential investors of the "various disclosures made by the bank" in its statement of the previous evening.

Merrill Lynch said at the time it did not accept the bank's characterisation of events.

CBA handed the deal to UBS, which underwrote a new $1.65 billion placement at $26 a share, down from the initial price of $27 per share.

ASIC noted CBA had elected to comply with its infringement notice and that, as stated in the act, compliance "is not an admission of guilt or liability".