Westpac customer fix costs $235m

A Westpac writedown in cash earnings has stoked fears that other banks will also unveil customer-related provisions.

Westpac has announced a $235 million writedown in cash earnings, stoking fears that other banks with September balance dates will unveil further customer-related provisions.

The writedown in 2018 cash earnings covers three customer remediation processes, including the industry-wide fees-for-no-advice debacle, and estimated provisions for recent litigation.

In the latter category are the two Federal Court cases brought by the Australian Securities & Investments Commission in relation to responsible lending breaches and manipulation of the bank bill swap rate.

While two-thirds of the impact from the writedown will be recorded as a revenue hit, with the remainder affecting the cost line, Westpac said after the close of the market that costs associated with responding to the royal commission were not included.

Chief executive Brian Hartzer said it was “disappointing” that some of the bank’s past practices had not lived up to appropriate standards.

“We are committed to fixing any issue identified, as well as ensuring that any customer affected has not been disadvantaged,” Mr Hartzer said.

He added that Westpac remained well placed to meet the strong capital benchmark imposed by the Australian Prudential Regulation Authority.

The bank’s announcement came on the eve of the public release of the financial services royal commission’s eagerly awaited interim report, which is expected to punch another big hole in the industry’s reputation.

ASIC deputy chairman Peter Kell told the royal commission in last month’s superannuation round of hearings that the big four banks and AMP had so far refunded $260 million to customers who had been charged fees without receiving any financial advice.

Mr Kell said he wouldn’t be surprised if total repayments were to exceed $1 billion.

The escalating cost of remediation programs is the main reason why analysts fear the major banks will book further provisions in relation to customers.

Westpac said yesterday’s provision covered refunds associated with advice fees charged by the group’s salaried financial planners after more detailed analysis by the bank going back to 2008.

Sometimes advice services were not provided at all, while in other cases Westpac was unable to sufficiently verify that the services were provided.

The second remediation process involved higher provisions for refunds to customers who might have received inadequate financial advice from Westpac planners, with the third case featuring legacy issues identified as part of the bank’s detailed product reviews.

In the responsible lending case brought by ASIC, Westpac paid $35m early last month to settle breaches between 2011 and 2015 — the largest civil penalty awarded under the National Credit Act.

While there was no allegation that the bank’s executives deliberately flouted the law, or that customers suffered financial loss, Westpac accepted that about 10,500 loans should have been referred to a credit officer for manual assessment.

In May, the Federal Court found Westpac engaged in unconscionable conduct on four occasions in 2010 in relation to trading in the BBSW, a key benchmark rate.

However, judge Jonathan Beach dismissed allegations that the bank engaged in market manipulation, and misleading conduct, on 16 occasions. The penalty has yet to be determined.

Westpac said yesterday that details of the provisions and costs were still being finalised, and the group expected to provide more information when it released its results template next month.

The program of reviews would also continue into the 2019 financial year.

Further costs associated with advice fees by Westpac’s aligned planners would be part of the program.

Westpac said it had started its “get it right put it right” initiative last year to address legacy issues in some products and practices.