Westpac has paid its long-suffering shareholders a reduced dividend but is now looking to cut costs and simplify the bank’s business as profits drop and expenses rise.
Westpac saw its profits tumble a massive 62 per cent off the back of loan deferrals and the AUSTRAC matter but paid out a reduced dividend of 31 cents per share. Shareholders will be pleased to hear that the bank plans on returning to its normal half-year dividend cycle as soon as possible, while chief executive Peter King – whose term was extended ahead of the results – has also laid out a three-point plan to build a brighter future for the bank: “Fix, Simplify, Perform”.
“Fix” springs from the bloodying Westpac received at the hands of financial crime regulator AUSTRAC, and will see the bank reduce customer “pain points” – IT complexity, and slow movement on remediation – while placing a stronger focus on risk management with the hiring of some 400 new staff to the risk, compliance and financial crime teams.
“AUSTRAC’s proceedings had a major impact this year and the agreement to pay a $1.3 billion penalty to settle the matter is an important step forward,” Mr King said.
“We have taken accountability for our mistakes and commenced a process of fundamental change, which has included refreshing the board and management and elevating oversight of financial crime, compliance and conduct.”
“Simplify” will see Westpac focus on core banking in Australia and New Zealand, consolidating its international businesses and creating a better digital banking experience. “Perform” will see Mr King crack the whip at the mortgage business, which has seen its loan book shrink across the year.
“We are addressing the issues that have impacted performance in our mortgage book and expect to see improvement start to flow in 2021,” Mr King said.
“The simplification of our business will support improved returns and help pave the way for a re-set of our cost base.”
While Westpac has seen its outstanding loan deferrals reduce substantially, Mr King will have to execute the expected turnaround in the bank’s fortunes while dealing with rising unemployment, rock-bottom interest rates, and ballooning expenses.
That will be aided in part by a significant cost-cutting program that CFO Michael Rowland hopes to roll out in 2021.
“As we look to simplify the bank in terms of the businesses that we’re in and the way we want to run ourselves, we know that we need to have a smaller cost base,” Mr Rowland said, noting that costs had blown out some 6 per cent for the year.
“And so I’ve taken personal accountability to develop a cost reset plan that actually aligns the simplification agenda that we’re driving more broadly at the bank to the cost base that we want for the future.”