Westpac’s Q3 update was surprisingly optimistic, with cash profits up and mortgage deferrals down. But one thing missing from the update was the latest on the AUSTRAC matter that has dogged Westpac and Mr King through the worst days of the COVID-19 crisis and stymied efforts to execute a real turnaround in the bank’s fortunes.
While the bank heightened its provision, it didn’t add a cent to the $900 million already set aside for the AUSTRAC matter. In fact, at least part of Westpac’s Q3 success can be put down to the fact that non-repeat of the AUSTRAC provision led to lowered expenses for the quarter.
“Our third quarter 2020 result excluding notables is higher than [first-half] average, mostly due to lower impairment charges,” Mr King said. “Nevertheless, the impact of the COVID-19 pandemic is clear as activity fell and margins declined.
“While there have been some signs that the economy is performing better than early expectations, significant uncertainty remains, particularly given the unpredictability of COVID-19 outbreaks and their local impacts.”
Mr King seems certain that Westpac won’t have to pay the full $1.5 billion penalty AUSTRAC is seeking for its misadventures – even as that penalty looks set to grow. Westpac recently announced AUSTRAC was looking into a further 276 customers who were the subject of suspicious matter reports (SMRs) related to potential child exploitation, along with thousands more threshold transaction reports (TTRs), which comprised the bulk of the breaches contained within the agency’s initial statement of claim.
Since that statement of claim was filed, Westpac has carried out extensive internal reviews that found its risk culture was “immature and reactive”, appointed a new group executive for financial crime, and restructured itself to improve end-to-end accountability. It’s likely that AUSTRAC – or the court – will take that transformation into account when deciding the final penalty. But AUSTRAC, which has been single-minded in its pursuit of the bank, probably won’t settle for much less.
It could well be that Westpac is waiting until AUSTRAC provides it with its amended statement of claim, which must be handed over before 25 September, before it decides to start putting money away. But given that any penalty sought will likely be materially higher – and the degree of uncertainty that COVID-19 has created – Westpac’s decision to hold steady on AUSTRAC is out of step with the expectations of stakeholders and regulators. Add that to a number of ongoing ASIC investigations, which Westpac admits could lead to enforcement action, and this might not be the last time the bank’s shareholders don’t see a dividend.
