Australia’s most troubled bank is still counting the costs of the royal commission and regulatory enforcement, and the worst could be yet to come.
Westpac has set aside more than $900 million to deal with a potential AUSTRAC penalty, but the final amount paid could be “materially higher or lower than the provision”. While the bank was widely expected to pay a penalty greater than $1 billion for its 23 million breaches of AML/CTF legislation, the worldwide pandemic – which has seen Australia’s big four open their coffers to small businesses – could see AUSTRAC cut it some slack.
Westpac also flagged a further $130 million hit to cash earning stemming from costs related to the matter – specifically, funding for charities fighting child exploitation and industry bodies working to prevent financial crime – but brand-new CEO Peter King has made it clear that he intends to turn things around at the scandal-wracked bank.
“In addition to closing relevant products and recruiting an additional 200 people in financial crime and compliance, I am putting in place a clearer accountability regime that will speed up decision-making, improve implementation and more clearly define responsibility and its associated risk management,” Mr King said.
Westpac has also set aside $260 million for “customer refunds, payments and associated costs and litigation” and expects to take a $70 million hit off the back of asset write-downs related to the COVID-19 pandemic. But the bank’s $2 billion capital raise last year – and APRA’s call for Australia’s banks to strengthen their tier 1 capital ratios – could be its saving grace.
“Having spent much of the last decade strengthening our capital we are well placed to respond to the unfolding environment,” Mr King said.
Westpac is still uncertain on what provisions it will need to take for credit losses related to COVID-19, but said they would be “significant”. Westpac is also yet to make a decision on dividend payments, saying it will provide an update with the announcement of its 1H20 results on 4 May.
While asset diversification is a “great strategy” to reduce risk, it’s important to also consider correlation, according to Australian...