Westpac facing historic dividend decision

Westpac chairman John McFarlane will lead the board through a momentous decision this week. Photographer: Adam Yip

History is in the making at the nation’s oldest bank, with the Westpac board all but certain to scrap the interim dividend after it was deferred in the May half-year result.

The directors, minus new appointee and former Rio Tinto chief financial officer Chris Lynch who will join the board on September 1, will make the momentous decision ahead of Tuesday’s third-quarter trading update.

The significance of shareholders emerging empty-handed won’t be lost on any of them.

Certainly in its modern history, Westpac has always paid a half-year and full-year dividend – a record which spans the bank’s near-death experience in the early 1990s and the global financial crisis in 2008.

Beyond that most memories have started to fade, although some observers with a keen eye to history reckon the 203 year-old lender’s dividend payment record is unblemished.

The truth is that the board has little choice, even more so now that the Australian Prudential Regulation Authority has the entire sector on a tight leash.

The real impediment, however, is Austrac chief executive Nicole Rose, who continues to press for a $1.5bn penalty over millions of admitted contraventions of anti-money laundering laws.

Westpac set aside a $900m provision, also in May, but the financial crime agency clearly believes the bank fits into a much worse category of offending than Commonwealth Bank.

CBA suffered a similar up-ending of its management team and board but only paid a fine of $700m.

As long as the Austrac matter remains unsettled, Westpac can’t afford the prospect of a near-term double-whammy.

It would be a reckless board that signs generous dividend cheques amid all the uncertainty of COVID-19, knowing that a massive Austrac fine could be just around the corner.

If Westpac had any serious hope it could isolate Austrac from its political masters, including Attorney-General Christian Porter who must sign off on any settlement deal, that disappeared with Porter’s extraordinary attack on the bank and its new chairman John McFarlane.

The nation’s chief law officer accused the big-four bank of arrogance and running a PR campaign while in delicate mediation talks with the financial crime regulator.

“Westpac has initiated a PR campaign while this matter is in mediation, and that PR campaign appears at odds with its apparent contrition shown at the time the offending was exposed,” Porter told this newspaper.

Porter also attacked McFarlane’s assertion that any penalty needed to be based on the facts “as to what has actually gone wrong”, and that Westpac was “pretty much experts” in the facts.

He noted that only eight days earlier, Westpac had disclosed that Austrac was seeking further information and could amend its statement of claim.

This, he said, demonstrated the “sort of arrogance and lack of understanding that led to the alleged breaches arising in the first place”.

Payment of an interim dividend would also fly in the face of APRA’s close supervision of the banks, and its insistence that they should preserve capital to support customers and the economy.

Westpac’s tier one capital ratio was already looking relatively skinny last May at 10.8 per cent.

Only a few weeks ago, the prudential regulator updated its guidance from April that banks and insurers should seriously consider deferring their dividends.

The sector has now been advised to retain at least half its earnings when they consider distributions.

Both Westpac and ANZ Bank deferred consideration of their interim dividends, with the latter pledging to review its decision at its third-quarter trading update.

The update is scheduled for Wednesday, the day after Westpac’s briefing.

Westpac didn’t specify a date for completion of its review but a result is overwhelmingly expected on Tuesday.

National Australia Bank paid a 30c interim dividend, while CBA was unfettered by APRA because of its June financial year.

The nation’s biggest bank announced an unchanged, $2-a-share interim dividend at its half-year result in February.

It was subject to the regulator’s revised guidance when it announced its full-year profit last week, with directors recommending a final dividend of 98c compared to $2.31 a year ago.