Board newcomer a shot to replace John McFarlane as Westpac chair

Westpac chairman John McFarlane will step down from the board in December. Picture: Nicki Connolly

The race to find Westpac’s next chairman has taken an interesting twist, with one newcomer to the board considered to have an outside chance to take the helm.

Michael Ullmer, a former Commonwealth Bank finance boss and deputy chief executive of National Australia Bank, joined Westpac’s board last month. That followed the appointment of former Goldman Sachs banker Tim Burroughs as a non-executive director in March.

Westpac has been seeking to bolster the strength and skills mix of its board. That comes after the bank was embroiled in an embarrassing anti-money laundering scandal – involving millions of breaches of the law – that led to it paying a record $1.3bn fine to Austrac in 2020.

That was followed by Westpac launching legal action against Forum Finance and its boss Bill Papas in 2021, alleging he was able to defraud the bank of hundreds of millions of dollars.

Papas is in Greece and hasn’t attended any court hearings, despite initially pledging to defend the allegations.

At last year’s annual general meeting, Westpac chairman John McFarlane told investors the bank’s leadership had made “progress in turning around” its performance, but more could be done.

He also flagged he would retire in December 2023, at the bank’s next shareholder meeting.

Director and former KPMG partner Peter Nash is thought to be the internal frontrunner to take the chairman’s reins. His chances have been somewhat tarnished, though, by a 11.2 per cent protest vote against his re-election in 2022, which was likely linked to Nash also being a director of the under-pressure ASX.

Ullmer’s track record as chair of Lendlease will also be closely scrutinised, given the group’s performance has been disappointing in recent times and has even attracted activist investors to the shareholder register.

Other internal board names that would have a chance at Westpac’s chairmanship include Brambles and Origin Energy director Nora Scheinkestel, former Rio Tinto global finance chief Chris Lynch, and possibly former Macquarie Group director and Insurance Australia Group CEO Michael Hawker.

Westpac chief executive Peter King this week delivered a 22 per cent rise in first-half statutory net profit to $4bn, but cautioned of a souring environment given just eight of 11 Reserve Bank rate hikes had made their way through to individual and business loan repayments.

While the result bettered analyst expectations, King was asked a string of questions about the bank’s lower investment spend given its regulatory woes and the pace of upgrading its legacy technology. Investors will keep close tabs on how Westpac manages the period ahead.

Merricks review

Liberman family backed-Merricks Capital, a non-bank lender, has had longstanding adviser Morgan Stanley assessing a range of strategic options for the firm.

The mandate relates to several options including purchasing loans books, strategically partnering with different forms of global capital, and risk transfer trades where Merricks’ funds acquire loans from banks. The partnering option is being gauged with a view to the company expanding its private lending program in Australia and New Zealand.

Merricks has more than $2bn in funds under management.

After fielding questions, a Merricks spokesman said: “The objective of this relationship (with Morgan Stanley) is to support the offering Merricks Capital brings to both investors and borrowers.

“We currently have a number of large infrastructure and commercial real estate loans under due diligence that will be core investments in the Merricks Capital Partners Fund but will likely also be syndicated to other offshore capital providers. The recent syndicated loan to finance the acquisition of a key office precinct by the Milligan Group is an example of similar coming transactions.”

The strength of private debt markets was highlighted again this month when alternative real estate investment manager Qualitas struck a mandate worth up to $1bn with a global institution, which it will pour into commercial real estate private credit deals.

That comes as major banks tread cautiously and pull back from commercial property lending, as they seek in part to sidestep higher-risk developments and low-margin construction.

Last year, Merricks appointed administrators to the Melbourne Place hotel project after developer and site owner Triple MMM Holdings defaulted on payments to the builder and others.

Rates pain

Older Australians are also feeling the pinch from the Reserve Bank’s aggressive interest rate hiking cycle. That’s evident from the rise in demand at Household Capital, a home-equity retirement funding group founded in 2016, which has experienced a sharp increase in business volumes in recent months.

Household Capital CEO Joshua Funder. Picture: Jane Dempster

It comes as more older Australians access equity in their home to refinance mortgages amid rapidly escalating loan payments and cost-of- living pressures.

Household Capital essentially provides a reverse mortgage product that facilitates retirees tapping into the equity in their home to borrow, boosting their cash flow. The company is backed by ASX-listed Helia, formerly Genworth, and Legal & General UK.

Joshua Funder, Household Capital’s CEO, told this column the company had experienced growth of 114 per cent in the 12 months through to March 31, reflecting loans to customers who were refinancing their mortgage. Household Capital’s overall portfolio volumes are up more than 100 per cent year-on-year.

More than 30 per cent of Australian retirees carry a mortgage, and that number is set to rise as more people retire and Australia endures the impact of an ageing population that is also living longer.

Household Capital has written more than $400m in loans, and its wholesale funding capacity will increase to $600m by the year’s end.

This columnist is taking a sabbatical for the remainder of 2023.