Westpac appoints Promontory for external accountability and financial crime progam review

Westpac appoints Promontory Financial Group as the independent expert for a review of its financial crime program.

Westpac is grappling with the fallout from Austrac allegations it breached the law 23 million times. Picture: Getty Images

Newly appointed Westpac independent expert Promontory Financial Group was prising open the bank’s defunct payments product LitePay overnight, as an olive branch was extended to retail investors ahead of next month’s annual meeting where a likely second strike on the remuneration report could lead to a board spill.

Westpac spent Thursday afternoon setting up data rooms at its head office in Kent Street, Sydney in preparation for a swarm of Promontory staff to start work in the evening.

A senior executive said the exact size of the Promontory team had not been determined.

“It will be whatever it takes,” he said.

READ MORE: Option to withdraw from share purchase plan | Westpac memo warned of breaches | Westpac CEO Brian Hartzer quits over Austrac scandal

Earlier, Westpac agreed after discussions with ASIC to provide a withdrawal option for retail investors who applied for shares under the share purchase plan before the announcement of Austrac’s civil penalty case against the bank.

Since the November 20 ASX announcement, the stock has shed almost $7 billion in value, falling $1.85, or 7 per cent, to $24.70.

Shares under the SPP, which closes on Monday, will be issued at the lower of $25.32 — the placement price for the $2bn institutional component of the $2.5bn raising — or the five-day volume-weighted average share price for the five days up to December 2, less 2 per cent.

“Westpac have reflected and done the right thing by small retail shareholders,’’ said Brett Paton, the chairman of boutique wealth management firm Escala Partners.

“Given their capital raising involved both a non prospectus placement and an SPP, it is only fair that retail investors that normally rely on a prospectus in these instances be given relief in the form of a withdrawal option from the SPP.”

Westpac announced a $2.5 billion capital raising at the start of the month alongside its full year results. The raising consisted of a $2bn share placement with institutional investors and a $500m share purchase plan for retail shareholders.

Lawyers Phi Finney McDonald said Westpac’s concession made no difference to the viability of the firm’s planned class action.

Principal Tim Finney said there were many shares bought and sold while the market was uninformed about the true extent of Austrac’s concerns about Westpac.

“If anything, the SPP withdrawal option shows that the bank accepts shareholder were not fully informed,” Mr Finney said.

There was no suggestion, he said, that Westpac would make a similar offer to institutional investors that were “out of the money” on the shares they purchased in the placement.

He said the firm had been contacted by local and offshore institutions keen to investigate a class action.

While the bank had revealed in its disclosure documents that it faced an Austrac civil case, Mr Finney said Westpac had made no reference to the volume or the subject-matter of the breaches.

“It can’t seriously be suggested that investors would be indifferent to the facilitation of child pornography,” he said.

UniSuper made it clear on Thursday that the $80bn fund would not join in any class action.

Chief investment officer John Pearce said the institutional component of the capital raising was “done and dealt with”.

Westpac has been reeling since Austrac lodged its Federal Court case, which alleges more than 23 million breaches of anti-money laundering and counter-terrorism financing laws.

About 19.5m of the breaches relate to $11bn of international funds transfer instructions over five years until September last year that should have been reported to Austrac within 10 days.

The more alarming breaches involve the LitePay product, which funnelled payment to The Philippines for 12 Westpac customers linked to child exploitation.

About 18 months elapsed before Westpac implemented an Austrac-required update in LitePay’s transaction monitoring scenarios in June 2018.

Amid a fierce investor backlash, the bank announced last Tuesday the resignation of chief executive Brian Hartzer, the early retirement of Mr Maxsted in the first half of 2020, and the withdrawal of non-executive director Ewen Crouch as a candidate for re-election.

Chief financial officer Peter King has taken on the role of acting CEO for as long as it takes to find a permanent CEO.

While Mr Maxsted has called for an end to the bloodletting, proxy advisers including ISS have recommended that investors oppose acceptance of the remuneration report, which could trigger a board spill after last year’s 66 per cent “no” vote.

They have also opposed the re-election of non-executive directors Peter Marriott and Nerida Caesar.

Mr Maxsted said on Thursday that Promontory’s first priority would be a review of issues associated with LitePay, which has been killed off.

“If and where procedural, escalation or accountability failings are confirmed through Promontory’s review, there will be immediate action taken,” he said.

A newly created financial crime board committee, headed by non-executive director and former KPMG Australia chief Peter Nash, will oversee the review.

The other directors on the committee include Mr Caesar, Steve Harker and Margaret Seale.

Westpac also said on Thursday it would appoint an accountability review advisory panel of three independent experts to consider Promontory’s report and provide recommendations on governance and board accountability.

It said the composition of the panel would be confirmed “in the coming days”, and the recommendations of the reviews would be made public and implemented as soon as possible.

ASIC, meanwhile, has started an investigation into all matters involving Westpac’s handling of the Austrac matter.

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