The reputation damage that continues to flow from the legal action, brought by the financial crimes regulator, and its ever-bulging case against Westpac is prompting a rethink of the view it shouldn’t agree to a bumper $1.5bn penalty.
The parties have been at loggerheads over the size of a penalty for the bank’s growing list of transgressions, with Westpac putting aside $900m for a settlement and Austrac said to be pushing for about $1.5bn.
But against the backdrop of Australia’s first recession in almost three decades and a renewed spike in COVID-19 cases clouding the outlook for credit losses, some senior parties in the Westpac corner believe accepting the higher settlement is the best way forward.
The damning claims, including that Westpac helped facilitate payments that funded child exploitation and pedophilia, continue to haunt the bank. The situation is exacerbated by Westpac last week disclosing it had not reported a further 175,000 transactions to Austrac and that about 360,000 reports that were made may have included “incomplete or inaccurate information”.
While Westpac admitted to the bulk of the initial 23 million breaches of the law — alleged by Austrac late last year — the parties continued to bicker over outstanding issues. Westpac, now led by chief executive Peter King and chairman John McFarlane, has previously expressed appetite for a financial settlement but the amount in question and issues over whether the bank had a compliance system in place have proven to be stumbling blocks.
This column understands mediation is yet to restart between Austrac and the bank. But if Westpac doesn’t settle, the court battle will be a protracted and costly one.
Just this week, the Federal Court granted Austrac an extension to lodge a revised statement of claim with Westpac by September 25, which would include a long list of further potential breaches of the law.
Initially the amended statement of claim was due to be filed with the court on August 14, and the next case management hearing had been scheduled for September. The next hearing is now slated for October 21.
Westpac has until mid-October to decide if it “consents or objects” to the amended statement of claim.
A Westpac board meeting is being held on Friday, where the Austrac battle and the outstanding issues will be part of a broader discussion. That comes ahead of the bank providing investors with a third-quarter earnings update in mid-August. It will include Westpac’s expectations around loan losses and the prospect of paying out a lower dividend under the banking regulator’s revised guidance for payments not to exceed 50 per cent of earnings.
After Westpac received a roasting last week from Attorney-General Christian Porter over its approach to the Austrac matter, settling the legal case in the current climate makes a lot of sense.
“Any assertion that only Westpac has all the facts relating to this matter demonstrates the sort of arrogance and lack of understanding that led to the alleged breaches arising,” Porter said.
A decision by the bank to agree to a record $1.5bn penalty would also, though, have to be carefully explained to irate shareholders.
Commonwealth Bank agreed to pay a $700m fine to Austrac in 2018 after it faced court proceedings for 53,750 breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act.
AMP’s saga
AMP has lurched to its latest crisis, this time the sudden departure of head of Australia Alex Wade.
The exit — linked to alleged conduct and performance issues — comes as chief executive Francesco De Ferrari looks to execute on his turnaround plan with another key executive hole to plug.
The cultural change needed at AMP is proving to be a huge challenge for De Ferrari, especially given the high turnover of executives. The heads of AMP Capital, the bank, and human resources are among some of the changes that have occurred on his watch.
That is coupled with a heavily challenged earnings environment due to structural change in financial advice and the fallout from COVID-19.
Whether De Ferrari — who appointed Wade to the enlarged head-of-Australia role and lured him to AMP from their old stomping ground Credit Suisse — is up to the task remains to be seen.
GBST gridlock
The takeover of former ASX-listed financial services technology group GBST by FNZ is confronting another twist, after the acquirer won a bidding war for the company last year.
Britain’s Competition and Markets Authority this week issued a provisional ruling that the purchase could result in “substantial lessening of competition”. It said the merged business would have close to 50 per cent market share.
But the deal has completed and GBST was delisted, complicating the situation. The British regulator has set out “potential options” for addressing its concerns including requiring FNZ to sell all or part of GBST. It has called for views on its findings by August 25.
A GBST spokeswoman said it looked forward to the conclusion of a “long-running process” and stressed it and FNZ had operated as independent businesses.
“The (CMA) investigation ... ordered FNZ to maintain and operate its business and that of GBST separately and not take any action which might impair our ability to compete independently,” she said.
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Internal momentum is building for Westpac to settle explosive legal action brought by Austrac, with a contingent of senior bank staff pushing for it to bite the bullet.