The head of a big four bank is confident that compliance spending will not increase, despite popular opinion to the contrary amid growing concerns around the royal commission.
Announcing Westpac’s full-year financial results on Thursday (5 November), which saw cash earnings flat at $8.1 billion, CEO Brian Hartzer explained that Westpac upped its investment pool to $1.4 billion over a challenging fiscal 2018.
“There was a significant increase in regulatory demands in the year, but we didn’t want to sacrifice the renewal of our platforms so we increased the pool. More recently, the biggest driver of costs increase has been regulatory and compliance spending,” he said.
“There is a bit of a myth around that banks will have to lift this significantly. But we have already grown this area by $268 million, nearly 30 per cent over the last couple of years. We are not expecting a further rise from here, but at the same time we are not expecting it to drop of in the near term.”
Westpac banking on retirees
Unlike its big four peers, Westpac is holding onto its wealth business, BT Financial, which Mr Hartzer is confident will deliver decent returns for the group.
However, in the second half of FY18 BT’s cash earnings fell 40 per cent from $241 million to $163 million as the division faced remediation costs and slashed prices on its Panorama platform.
“The two big impacts on the BT result were remediation costs and some strategic pricing decisions we took to set the business up for the future. We led the market in eliminating grandfathered commissions and we introduced lower and more transparent pricing across our platforms,” Mr Hartzer said.
“There are a lot of moving parts in the BT result but if you strip out the infrequent items, earnings were flat. That compares favourably to other wealth businesses in the market and despite the environment the underlying business continues to deliver acceptable returns.
With Panorma, we now have one of the lowest costs and best featured platforms in the market and with $12.7 billion on the platform, we have doubled in size over the year.”
Fielding questions from analysts, the Westpac chief explained that the bank’s wealth division is made up of many different components operating on different levels.
“If you think about private wealth, it’s a great business, we have a great position in it. It has grown really strongly. We’re really happy with it. If you think about the platforms, we have done a repricing but the demand it really strong there. With BT Open the appeal is strong, the inbound interest has been fantastic and we expect that to translate into volume,” he said.
“On the insurance side we have had good growth on written premiums.
“So really it comes back to the challenge on financial advice. We have had a lot of remediation claims around that and we are still figuring out how to make that work.
“We think over time, we still have adjustment to work through, but the demand from retirement customers is attractive.”