Terry McCrann: Westpac needs to take same memo as Commonwealth Bank after APRA pinging

Westpac getting pinged by prudential regulator APRA was much more than an embarrassment — given it could cost both the bank and its shareholders real money.

It appears CBA got the memo; Westpac didn’t, or didn’t bother to read it.

Westpac getting pinged by its key boss – prudential regulator APRA – was much more than an embarrassment, even a serious embarrassment that could cost it and its shareholders real money.

The pinging went to the heart of the way Westpac functions; it also struck directly at supposed ‘new-broom’ CEO Peter King. It could be a huge problem for him and even more for even ’newer-broom’ chairman John McFarlane.

King of course stepped up to temporarily replace former CEO Brian Hartzer, when the world inside the Westpac boardroom imploded over its money-laundering disaster in November last year, and then formally got the job in April this year.

Then (long-time) chairman Lindsay Maxsted had clung on for a few months after the money laundering disaster blew-up – until McFarlane who had been CEO of the ANZ Bank in the early 2000s was parachuted back into the Westpac boardroom as chairman.

Now, yes, King inherited the ‘immature risk culture problem’ identified by APRA, but the really punishing detail in APRA’s statement was that the fix – supposedly implemented by King and under McFarlane as chairman – had failed.

Westpac CEO Peter King Picture: Jane Dempster/The Australian.

That failure now means that Westpac has to, and I quote, ‘enter into an enforceable undertaking over risk governance remediation’.

In very simple and brutal terms, this – and the costs against and limitations on Westpac’s operational dynamics – cannot be blamed on the previous CEO and previous chairman.

These – lost – bucks now stop at the desks of King and McFarlane.

Yes, CBA also got whacked yesterday – by a completely separate regulator ASIC – over what used to be called usury.

And boy, was this USURY with a capital-U all the way down to the ‘Y’. CBA ‘should’ have been charging, albeit a relatively small number (2200) of, its small business borrowers 16 per cent interest; a “systems error” meant it actually charged 34 per cent.

That should, I hope, make you appreciate what you were paying on your home loans at around the same time (mid-2010s); it should REALLY make you appreciate the 2 per cent on offer right now.

I might also note, it also almost makes you feel sorry for banks – and especially those bankers in the penthouse offices at whose desks all these (big) bucks stop.

If it’s not the prudential/culture regulator APRA, it’s the corporate cop ASIC – and there’s still the competition czar, the ACCC, lurking also. Talk about four-letter words!

Westpac was pinged by its key boss – prudential regulator APRA Picture: NCA NewsWire / James Gourley

On second thoughts, actually, sorry NOT: certainly not in 2020 after what everyone’s been though.

Despite this latest issue – and it did actually happen before 2018 – the CBA well and truly ‘got the memo’ and tidied up its act; including settling fast and early with AUSTRAC over its money-laundering issue.

The big thing that worked for CBA was being identified early as the baddest of the big four. So way back in August 2017 APRA got former ACCC boss Graeme Samuel to do a forensic ‘culture audit’ of CBA.

Samuel (& Co)’s interim report came just five months later and the final report three months after that. It gave CBA a long ‘to-do’ list’ and CBA has now all-but ‘done it’.

Clearly Westpac in contrast proved to be a ‘hard case’; it also looks like an incompetent case, as it claimed to have sorted its culture issues. APRA disagreed, and so Westpac will now get hit with some serious pain.

The CBA went through that; it’s now coming out and we can see the pay-off in the relative share prices.

CBA is now back to just 12 per cent shy of its pre-virus February peak; Westpac is still 22 per cent below that level.