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Wealth remediation, restructure costing Westpac $620m

Wealth remediation, restructure costing Westpac $620m

Sarah Simpkins
— 1 minute read

Westpac saw its profit sink by 19 per cent for 1H19, with the group taking a blow from its wealth division’s remediation costs of $484 million and restructuring expenses of $136 million.

The group’s reported net profit came to $3.1 billion while cash earnings came to $3.2 billion, down 22 per cent from the prior corresponding period.

Excluding the major remediation costs of $617 million and wealth restructuring expenses of $136 million, cash earnings were down 5 per cent.

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The bank’s statutory net profit was down 24 per cent to $3.1 billion.

Net fee income dropped by 35 per cent, or $452 million, partially due to lower advice revenue. Fewer planners and declined activity gave way to a revenue fall of 16 million.

Westpac also had a cash earnings loss of $305 million from its wealth business BT Financial Group, with the division’s revenue plummeting by 63 per cent to $439 million.

The bank listed changes in pricing structure, the end of grandfathered commissions and the exit of Hastings in the second half last year as causes for the segment’s decline.

The restructure will see the Westpac private wealth, platform & investments and superannuation businesses move into an extended Business division, with the insurance business to transition to the consumer segment.

BT will no longer exist as a standalone division from 2020, with the bank expecting to save around $560 million in costs.

Wealth covered 78 per cent of the bank’s remediation expenses, costing the bank $484 million for the half.

The bank’s wealth remediation more than tripled from the prior corresponding period and has totalled around $808 million since 2017, amassing as a $1 billion impact for the banks’ cash earnings.

Westpac has provisioned $1.4 billion in total, pre-tax, for its customer remediation costs for the past three years, including $1.2 billion for customer refunds.

Westpac has more than 400 employees working on remediation. Around $200 million has been repaid to customers in the last 18 months.

“This is a disappointing result reflecting weaker business conditions and the bank dealing decisively with outstanding issues, including remediation and resetting our wealth strategy,” Brian Hartzer, chief executive, Westpac said.

“We’re exiting personal financial advice to focus on the parts of our wealth business where we have a competitive advantage, and we are delivering significant cost savings by simplifying our business.”

The funds management business, excluding advice, posted $236 million in earnings, dropping by 16 per cent from the year before. Insurance had earnings of $87 million, a 35 per cent decrease.

Capital and other had $21 million in earnings during the half, a 5 per cent decline. On the hand, the advice segment had a $29 million loss.

With the sale of its advice business to Viridian Advisory, the restructure has seen the departure of two of the bank’s most senior executives. Viridian took on around 175 staff, including 90 advisers from BT.

Westpac’s earnings were predicted to be reduced by $357 million back in April to account for remediation to do with financial advisers while operating under the Magnitude and Securitor Advice licenses.

Westpac now has 679 salaried and aligned planners, down from 939 in the first half last year.

“By realigning BT’s wealth and insurance businesses into our Consumer and Business divisions and introducing a new referral model for personal advice, we are building a stronger and more efficient bank,” Mr Hartzer said.

Notably, the bank’s investing platform Panorama reported a 45 per cent rise in advisers using it year-on-year, with the number of investors rising by 84 per cent to 32,444. Westpac reported 2,291 advisers on the platform.

There are now $17,041 million in funds under administration on Panorama, an 82 per cent increase from the year before.

Looking at other divisions, the consumer bank’s earnings were down by 11 per cent to $1.5 billion, which Westpac said was due to higher wholesale funding costs and lower mortgage spends. Higher expenses were also cited, from a rise in regulatory and compliance costs, along with increased investment spending.

The Institutional Bank’s earnings slipped by 2 per cent to $543 million. Westpac blamed a reduction in financial markets revenue and a first half impairment charge compared to an impairment benefit the year before.

The business banking division had a drop of 6 per cent in its earnings, to $1 billion for the half while the New Zealand bank delivered the strongest result for the half, seeing its earnings grow by 15 per cent to $555 million.

Cash earnings per share fell by 23 per cent, coming to 96 cents. The interim fully franked dividend was unchanged at 94 cents per share.

The bank also cut down on staff, reporting around 800 less full-time employees.

The common equity tier 1 (CET1) capital ratio of 10.64 per cent, above APRA’s benchmark.

 

Wealth remediation, restructure costing Westpac $620m
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