Shareholders take CBA to court over share price drop

Shareholders take CBA to court over share price drop

The bad news keeps on coming for Commonwealth Bank of Australia. 

Maurice Blackburn Lawyers have partnered with Australia’s largest litigation funder, IMF Bentham, on behalf of Commonwealth Bank’s (CBA) near 800,000 shareholders against CBA.   

The class action comes as shareholders suffered a significant share price drop following a shocking lawsuit against the big four bank. 

Early in August, AUSTRAC announced civil penalty proceedings against CBA over 53,000 acts of “serious and systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act)”.

 To make matters worse, only a week later CBA announced they would have to refund around $10 million to tens of thousands of Aussies after selling unsuitable consumer credit insurance. 

National Head of Class Actions at Maurice Blackburn, Andrew Watson, believes that given how extensive the AUSTRAC allegations are, “it is astounding that the market would not be advised of such serious and repeated breaches as soon as the company became aware of them”. 

“Instead the CBA has said that its Board was aware of the breaches in the second half of 2015 but chose to say nothing to the ASX until 4 August 2017. 

“As the largest company on the ASX shareholders [we] would expect the CBA to take a leadership role in setting high standards of corporate conduct.  

“The AUSTRAC allegations, if proven, show an abject failure of corporate governance and risk management.  

“The failure to make proper disclosure to the market regarding those failures adds insult to injury for shareholders,” said Mr Watson. 

CBA shares dropped from an intra-day high of $84.69 on 3 August 2017 to an opening price of $80.11 on 7 August 2017, following the AUSTRAC legal proceedings becoming public. 

“Our investigations and analysis show that this drop was in the top one per cent of price movements that CBA experienced in the past five years, making it apparent that the news was of material significance to shareholders,” said Mr Watson. 

The Commonwealth Bank responded to the potential lawsuit in a media release, stating that it was “aware that Maurice Blackburn and IMF Bentham announced today that they are investigating a potential shareholder class action against Commonwealth Bank”. 

“Commonwealth Bank has not been served with any legal proceedings. 

“We will keep the market informed of developments,” concluded the three-line statement.

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An ‘upfront’ or ‘application’ fee is a one-off expense you are charged by your bank when you take out a loan. The average start-up fee is around $600 however there are over 1,000 loans on the market with none at all. If the loan you want does include an application fee, try and negotiate to have it waived. You’ll be surprised what your bank agrees to when they want your business.

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Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

How can I negotiate a better home loan rate?

Negotiating with your bank can seem like a daunting task but if you have been a loyal customer with plenty of equity built up then you hold more power than you think. It’s highly likely your current lender won’t want to let your business go without a fight so if you do your research and find out what other banks are offering new customers you might be able to negotiate a reduction in interest rate, or a reduction in fees with your existing lender.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

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When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

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Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

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Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

What is a cooling-off period?

Once a home loan’s contracts are exchanged between the borrower and the lender, a five-day cooling-off period follows, during which the contracts may be cancelled if needed.