ACC3004 Business Finance: Analysis of the Banking Royal Commission

This report delves into the Banking Royal Commission established to investigate misconduct within Australian banks. It highlights appalling behaviors such as forged documents, bribes, and failures to assess consumer living expenses before lending. Major banks like Commonwealth Bank, Westpac, ANZ, and NAB were implicated. The report identifies issues with vertical integration in financial advice, where banks prioritized selling their own products, often not in the best interest of consumers. Consumers suffered significant financial harm, leading to remediation payments totaling millions of dollars. The Royal Commission issued warnings of imprisonment for wrongdoers and imposed penalties on implicated banks. Case studies on company valuation (CBA), dividends (CBA) and capital budgeting (Lez Foxwell) are also addressed with questions from textbook answered.

Banking Royal Commission

The Royal Commission
It was established in late December.
It developed after facing the public
pressure from consumer groups,
whistle blowers and others.
The role and responsibility of the
commission is to find out any sort of
misconduct done by Australian banks.

Areas of concern identified
• Appalling behaviour was observed
by many of the major banks
operating in Australia.
•Documents were forged and
bribes were charged from the
customers before lending money to
them.

Areas of concern
• The banks fail to identify the living
expenses of its consumers before
lending them the money on credit.
• Commission also identified that many
of the bankers have lied to regulators
and have charged fees to the dead
clients

Banks who were involved
Commonwealth Banks
Westpac
Australia and New Zealand
banking group
National Australia Bank

Issue with the financial advice
Banks discovered a process of
vertical integration.
In this, they would be highly
profitable by selling their
financial advices and products
to their customers.

It was found that the 75%
of the advices does not
comply with the best
interest of consumers.
An inherent conflict of
interest arose.

Effect on consumers
The bank has paid $250 million to 540,000
customers in remediation for its misconduct
in respect to home loans.
Car loans – paid $90 million to 17,000
customers.
Credit cards - $11 million paid to 34,000
customers.
Add on insurance - $128 million to
consumers as a remediation.

Reaction of Royal Commission
A warning is issued for the
wrongdoers as if the practices
continue, they can face
imprisonment.
The commission take the
situation seriously.
It identified several penalties for
the banks who were involved.

Refernces
The Guardian. (2018). Banking royal commission: all you
need to know – so far [Online]. Available at: https://
www.theguardian.com/australia-news/2018/apr/20/bankin
g-royal-commission-all-you-need-to-know-so-far
[Accessed 9 September 2018].
ABC News. (2018). Banking royal commission: It could
get a lot worse for the banks as the focus turns to
superannuation [Online]. Available at: http://
www.abc.net.au/news/2018-08-05/royal-commission-coul
d-get-worse-for-banks-as-its-looks-at-super/10069820
[Accessed 9 September 2018].