Marriott to survive at Westpac as passions cool

A second strike over remuneration is inevitable at Westpac’s AGM. Picture: David Geraghty.

Stress in the Westpac boardroom over the fate of non-executive ­director Peter Marriott at Thursday’s annual meeting has eased somewhat, as industry super funds swing their support behind departing chairman Lindsay Maxsted’s Austrac response plan.

The nation’s biggest fund, the AustralianSuper behemoth that holds $1.8bn of Westpac shares, will support the full slate of resolutions, including Marriott’s re-election and the remuneration report.

The $54bn Cbus fund, which was one of Westpac’s more vocal critics in the immediate aftermath of Austrac’s November 20 statement of claim, has engaged with Maxsted and now sees the value of some overriding stability as the ­reform process continues.

Cbus’s support follows the resignation of Westpac chief Brian Hartzer, Maxsted’s early retirement in the first half of 2020 and non-executive director Ewen Crouch not seeking re-election.

The boardroom convulsion was triggered by Austrac’s claim that Westpac broke anti-money laundering and counter-terrorism financing laws more than 23 million times.

The Australian Council of Superannuation Investors — the umbrella body for local and ­international funds with $2.2 trillion under management — has reached a similar conclusion to Cbus but only because the ­accountability axe has already swung.

Marriott, it says, is now the only Westpac director with significant Australian banking experience. Five of the serving directors, including three of those up for re-election, have joined the board since 2017, and it was ­important for the new chairman to lead the renewal process.

Instead of being too close to call earlier in the week, the re-election of audit committee chairman Marriott has firmed to more likely than not.

Westpac directors tend to celebrate the most meagre of victories in the present environment.

The shortening odds for Marriott’s return mean more than that because almost everyone believes the former ANZ chief financial officer makes a meaningful contribution.

As for the remuneration report, a second strike is inevitable, with the “no” vote to fall in a range of 25-50 per cent — well short of last year’s disastrous 64 per cent.

Again, the bank is seen as having taken its medicine after fuelling an investor revolt last year by paying short-term bonuses to senior executives despite the misconduct spotlighted in the royal commission. Hartzer gave up his short-term bonus this year, and scorecards for all group executives were marked down to zero for non-financial risk.

While a second strike on pay is embarrassing enough, the follow-up vote for a board spill is expected to fall well short of the required 50 per cent.

While it’s likely to be a gruelling meeting, it could have been much worse.

Oil giant has a win

Exxon Mobil has won a closely watched case brought by New York state over the oil giant’s ­accounting for the financial risks of climate change.

As pressure intensifies around the world for companies including banks to disclose climate and other emerging risks in their ­accounts, Exxon was alleged to have used two sets of numbers — one public, the other private — to account for its greenhouse gas emissions.

The purpose was to encourage investors to reward Exxon for its financial conservatism and environmental awareness.

New York’s action therefore related to securities fraud rather than a forensic examination of the company’s contribution to the changing climate.

Exxon responded by accusing the state of manufacturing a discrepancy, conflating two sets of figures that were created for two different purposes.

Ruling in favour of Exxon, the court said the state had produced no evidence from an investor who claimed to have been misled.

New York was undaunted, saying Exxon had been forced for the first time in history to “answer for their internal decisions that misled investors”. “The oil giant never took seriously the severe economic impact that climate change regulations would have on the company, contrary to what they were telling the public,” Attorney-General Letitia James said.

Other cases seeking to hold ­energy companies accountable for climate change mitigation, or costs flowing from natural disasters, are in the pipeline in the US. They will have inevitable spillover effects on lenders and the ­financial services industry more broadly.

Non-bank tightening

If anything, ASIC’s updated guidance on responsible lending could lead to a slight relaxation in credit standards.

That’s because the major banks have been tightening their income and expense verification processes over the past few years.

They would have been foolish not to have done so, knowing that Ken Hayne’s royal commission juggernaut was bearing down on them.

ANZ, of course, has openly admitted it was over-zealous.

It paid the price by surrendering market share and has been desperately trying to claw it back ever since.

A similar process will occur at other lenders now the regulatory guidance has been updated for the first time in five years.

It remains a work in progress, however, with the full Federal Court to hear ASIC’s appeal next February in the celebrated “wagyu and shiraz” case involving alleged responsible lending breaches against Westpac. The ramifications of that decision will be included in updated guidance.

In a note on Wednesday, Macquarie analysts said some tightening of credit standards was expected in the non-bank sector because of ASIC’s revised requirements. However, it was unlikely that the playing field would be ­sufficiently levelled for the majors to win back lost share.

An improved ability for customers to switch lenders would also maintain pressure on margins and further narrow the pricing gap between the back book of loans and the front book.

According to Macquarie, the impact on credit availability will be insignificant and the big four’s market share will continue to erode, albeit at a diminishing rate.

Four Pillars will resume in January. Happy Christmas to all.

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