Investors demand action by Westpac

Investors and proxy advisers ramped up pressure on Westpac’s embattled board on Monday.

Westpac CEO Brian Hartzer Picture: AAP

Investors and proxy advisers ramped up pressure on Westpac’s embattled board on Monday, demanding answers, and further ­action on compliance failings and accountability for 23 million alleged breaches of the law.

The Lindsay Maxsted-led board got on the offensive to explain its response to shocking legal action by financial crimes regulator Austrac on Monday with a first round of key meetings.

The board convened on Monday night to review feedback from meetings with investors and proxy adviser ISS, but it is understood the full stocktake of investor views will occur at a more formal board meeting on Tuesday.

Ethical Partners Funds Management investment director Nathan Parkin said more accountability was required at Westpac as large fines would result from the Austrac action.

READ MORE: CBA an ongoing inquiry | This is no Enron, says Westpac’s Hartzer

“In the midst of cash (Austrac penalty) going out the door of shareholders’ funds ... who says that’s OK, let’s just go on?” Mr Parkin said. “The bank needs to show someone is accountable for the large fine and penalties that are likely to occur,” he added, noting accountability had to occur at a “high level”.

Ethical Partners owns Westpac stock, but moved underweight on the shares in May, after paring its stake on concerns the bank had been “too slow to act” on its capital position and cutting its dividend. It has further reduced its Westpac position on the back of the legal ­allegations.

Mr Maxsted on Sunday told The Australian the board was backing Mr Hartzer and had not seen anything that was cause for his dismissal.

He qualified that by saying he was yet to meet with large shareholders and that could change “if there isn’t investor support” for Mr Hartzer.

Westpac shares fell to their lowest level in more than nine months on Monday, sinking another 1.3 per cent to $24.44. The stock has lost about 8.8 per cent since the damning Austrac action was made public last Wednesday.

Austrac’s Federal Court action claims Westpac failed to assess and monitor ongoing money-laundering and terrorism-financing risks for more than $11bn moved into and out of Australia through its banking relationships.

The allegations also include the damning revelations that Westpac failed to conduct proper diligence on 12 customers linked to child exploitation risks. One of those opened Westpac accounts after serving a custodial sentence for child exploitation.

A top 20 Westpac investor said while he thought the bank was taking good steps to fix processes and address the legal action, pressure from politicians and other sections of the community would probably be too great for chief executive Brian Hartzer to continue. “They’d like to bide time and get a clearer line of sight (on accountability),” he said on the basis of anonymity. “The reasoning for why the matter wasn’t escalated is still a bit cloudy, though. My take is he (Mr Hartzer) won’t survive.”

The clock is ticking for ­Westpac’s board because it wants to avoid another shareholder revolt against its pay report at an ­annual meeting on December 12.

The board is seeking to appoint independent experts to assess, among other things, why it took 18 months to update its systems to adequately screen for potential child-exploitation payments flowing to The Philippines and Southeast Asia. That is after new guidelines were issued and communicated by Austrac.

On Sunday, Westpac released a response plan to fend off calls for resignations. It included bolstering the resourcing of its financial crimes unit, setting up a board subcommittee and freezing the short-term bonuses of executives pending the independent reviews.

The bank later estimated the plan in its entirety — which includes a string of donations to child-protection agencies — will increase its expenses by up to $80m pre-tax in its 2020 financial year. Plato Investment Management managing director Don Hamson said his firm was meeting with Mr Maxsted on Tuesday and was still forming a view.

“It’s (the Austrac action) a pretty important issue given what’s happened to the share price,” he said. “We want to make sure we’ve done all our homework.”

Westpac board representatives are said to be engaging with proxy firm Ownership Matters and the Australian Council of Superannuation Investors this week. A report by ISS is expected within days.

Another Westpac shareholder said: “The writing is on the wall (for either the chairman or CEO). But if Brian goes there is not a huge depth of internal candidates and it’s not an easy transition.”

Large investors in Westpac include investment heavyweights BlackRock and Vanguard.

Norges Bank Investment Management — which manages Norway’s global government pension fund — owns 312 stocks in Australia, including a 1.15 per cent stake in Westpac.

Westpac to correct statement

Westpac will be forced to correct its response statement, issued on Sunday, after The Australian confirmed claims made in the document about the controversial LitePay foreign exchange service were incorrect.

Westpac on Sunday said the LitePay product “was launched as part of a broader initiative with the Department of Foreign Affairs and Trade under an MOU to improve the livelihoods of men and women in the Pacific by increasing their access to finance.” Following inquiries by The Australian, the government confirmed with Westpac the statement was “wrong” and said the bank would be issuing a corrective statement.

LitePay was introduced as a cheaper alternative to the SWIFT international transfer system, which is compliant with the law.

Additional reporting: Michael Roddan