Westpac CEO Brian Hartzer survives emergency board meeting on Austrac

Westpac CEO Brian Hartzer has survived a marathon board meeting as the bank announced an independent review.

Westpac’s embattled board says it will hire an independent expert to review accountability ahead of it taking “actions”, but the bank opted not to cut loose its chief executive in response to landmark legal action for failing to prevent money laundering and child exploitation.

In an ASX statement issued on Friday afternoon, the Westpac board, led by chairman Lindsay Maxsted, apologised for the scandal and said it was putting an “urgent response” plan into action.

The statement followed a marathon Westpac board meeting, flagged by The Australian on Thursday.

“As a board, and as individuals, we are devastated by the issues raised by Austrac in its recent statement of claim,” Mr Maxsted said in the statement.

“The notion that any child has been hurt as a result of any failings by Westpac is deeply distressing and we are truly sorry. The board unreservedly apologises.

“Our board, CEO, and management team are fully committed to fixing these issues and we are taking all steps necessary to urgently close any remaining gaps and fix our policies and procedures so that this can never happen again.”

READ MORE: D-Day for Westpac’s board The buck always stops at the top

The shocking allegations, made by the financial crimes regulator Austrac, have triggered a more than 7 per cent decline in Westpac’s shares over the last three trading sessions.

Earlier this week, Austrac lodged a claim in the Federal Court accusing the bank of 23 million breaches of anti-money laundering and counter-terrorism financing laws. Included in the claim was the explosive revelation that Westpac failed to intervene in 12 cases it had been told had a high risk of links to child exploitation and pornography.

Some investors have said chief executive Brian Hartzer won’t survive the scandal.

The Westpac statement comes as fund managers and analysts factor in the possibility of a penalty that could top $1bn and spur higher spending on compliance.

Westpac Chairman Lindsay Maxsted (left) and CEO Brian Hartzer. Picture Colin Murty

“This review includes accelerating our ongoing program of AML/CTF improvements and we will provide public updates on our progress,” Mr Maxsted said.

“In addition, we will appoint independent experts to oversee the program including a review of accountability. We will take actions emerging from that review. An assessment of suitably qualified candidates to lead that review is underway.

“We have also commenced discussions with relevant community groups about any further steps we can take to fight child exploitation.”

Mr Maxsted said Westpac was continuing to work with Austrac to “accelerate resolution” of the legal matter.

“The board will provide an update in coming days to share more information on what has occurred and what steps we are taking.”

But the statement may not convince fund managers that Mr Hartzer will completely survive the controversy.

In 2017, Commonwealth Bank CEO Ian Narev stared down calls to resign in the wake of the first major Austrac scandal to hit Australian banks. But within approximately two weeks CBA chair Catherine Livingstone announced that Mr Narev would step down in July the following year.

PM calls for action

Earlier on Friday Prime Minister Scott Morrison again called on Westpac’s board to take action over the Austrac scandal, stopping only just short of calling for heads to roll.

Speaking to radio station 3AW in Melbourne as Westpac’s board prepared to meet in the morning, Mr Morrison said the bank needed to take action to restore confidence and demonstrate accountability.

“They have got to take the calls that I think reassure people’s confidence in the bank’s systems and the processes they have, and that there is accountability that is at work in these institutions,” he said.

Prime Minister Scott Morrison has renewed pressure on Westpac to take action over the Austrac scandal. Picture: AAP

The Australian reported that Westpac’s board, had already had discussions during a late night phone conference on Wednesday, and has requested additional information from Austrac about the matters.

Austrac’s statement of claim included the damning accusation that the issues were “the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board”.

Sources to The Australian that the board wanted to understand how Austrac formed that view and whether the regulator had previously communicated concerns around management “indifference” and to whom.

Mr Morrison’s comments on Friday morning marked the third time he had called on Westpac’s board to take action. After news of the scandal broke on Wednesday, Mr Morrison said banks needed to do better. “They have just got to lift their game on this stuff. It is a fairly damning indictment about some of the processes and procedures they have had in place, he said.

During an interview on ABC radio on Thursday morning, Mr Morrison said Mr Hartzer’s future was a matter for the bank and “ultimately a judgment for the board of Westpac.

“It is not for the government to say who should be in those jobs or not,” Mr Morrison told ABC radio. “But they should be taking this very seriously, reflecting on it very deeply and taking the appropriate decisions for the protection of people’s interests in Australia.”

Westpac is scheduled to hold its annual general meeting December 12.

Fund managers are also raising issues around the level of disclosure provided by Westpac on the Austrac matter and potential penalties ahead of its $2bn capital raising.

“If they knew anything about the (child) exploitation piece they should have (disclosed more information),” a Westpac investor said on the basis of anonymity, referring to the bank’s capital raising this month.

“They need to put out a full statement (in response to Austrac’s court action). Westpac needs to put some context around this.”

Macquarie analyst Victor German this week raised his estimate for Westpac’s Austrac penalty to $700m from $150m.

“We see diminished capacity for WBC to reduce its expenses and expect costs to continue to rise in the medium term,” he said.

with AAP