NAB has announced a further $1.2 billion in remediation expenses – mostly relating to financial advice in an update this morning that has already seem the banks share price tumble 3%. The additional expense means that NAB’s cumulative provisions for customer remediation were now worth $2.09 billion at September 30. The increase supports predictions that the total cost resulting from misconduct for the big banks and AMP for both remediation and increased spending on risk and compliance could top $10 billion.
NAB’s statement to the Stock Exchange said it would set aside an additional $1.2bn to compensate victims of shoddy financial advice provided by planners linked to the bank. It said it estimated it would have to refund what amounts to 55% of adviser service fees that self-employed (aligned) advisers received between 2008-2018, along with 40% of adviser service fees charged by salaried NAB Financial Planning advisers. Total fee received during this time were said to be $1.3 billion. It would also refund many consumers who were sold junk consumer credit insurance through it’s channels. The statement said 92% of the charges were related to “wealth and insurance related matters”.
The statement said that NAB had already made around 450,000 payments to customers totalling over $202 million between June 2018 and August 2019 and that it had a dedicated team of about 400 people “helping to bring greater discipline and focus to remediating customers”.
Interim chief executive Phil Chronicansaid "While we previously noted additional customer-related remediation provisions were expected in 2H19, the size of these provisions is significant. We understand that shareholders will be rightly disappointed. However, we also recognise the need to prioritise dealing with these past issues and fixing them for customers."
Running Programs Adds To Cost
Remediation payments to customers for misdeeds by the major institutions are continuing to spiral higher, leading some analysts to predict the total cumulative cost of actual refunds and the remediation programs themselves could top $10 Billion. AMP, Westpac, CBA and NAB all have teams of around 400 people dedicated to these programs, increasing the costs well above the actual customer refunds needed – in the case of the CBA, nearly 40% of the costs are for running the remediation program itself.
To date, the big six have already committed to around $7.6 billion in remediation costs.
Big 6 Totals So Far Committed to Remediation:
- Commonwealth Bank of Australia - $2.17 billion
- NAB – $2.1 billion
- Westpac has provisioned $1.45 billion in total over the past three years
- ANZ Bank has announced remediation costs of $907 million.
- AMP has made provisions for $778 million
- IOOF remediation provision in financial advice business - $223.2 million.
Total: Over $7.6 billion…so far.