Westpac flags return to ‘more consistent’ dividends

Westpac hopes to return to a ‘more consistent dividend’ every six months, as it sidestepped a third strike against executive pay.

Westpac chairman John McFarlane fronted shareholders at the bank’s virtual AGM on Friday. Photographer: Adam Yip.

Westpac chairman John McFarlane says the embattled bank hopes to return to declaring a “more consistent dividend” every six months as he flagged a review of pay structures and the bank averted a third strike on its remuneration report. 

In a speech at the bank’s online annual general meeting, Mr McFarlane said he was conscious of the importance of dividends to individual shareholders, and that many were unhappy that the bank did not pay a first-half dividend and paid a lower dividend for the year.

“Going forward, I’m hopeful we will return to a more consistent dividend each half,” he added.

“The past seven months has seen a great deal of change inside the company that will provide a stronger foundation.

“We also put in place plans to make the company more streamlined, more efficient, and more digitally capable, with lower costs and a lower cost-income ratio while maintaining strong capital levels.

“These plans should enable us to improve performance significantly and enable us to return to more appropriate dividend levels,” he said.

Like its rivals, Westpac’s dividends have been constrained by the latest guidance from the banking regulator: that payments be capped at 50 per cent of statutory profits.

While Westpac’s performance has been marred by the impact of COVID-19 and record low interest rates, it has also navigated a string of compliance failures that saw it agree to pay a record $1.3bn penalty to the financial crimes regulator Austrac. The bank has outlined plans to fix compliance failings after the scandal claimed the job of former chief executive Brian Hartzer and brought forward the retirement of former chairman Lindsay Maxsted.

On remuneration, Westpac shareholders overwhelmingly supported the bank’s 2020 pay report, avoiding a third straight strike.

In AGM voting on Friday 97.7 per cent of investors supported the bank‘s remuneration report after the board axed executive short-term bonuses this year to ensure accountability over more than 23 million breaches of anti-money laundering laws.

Westpac suffered consecutive strikes against its pay report at the two previous fiery AGMs. That occurs when 25 per cent of shareholders vote against the remuneration report.

Investors last year stopped short of voting in favour of a motion to spill the board.

On Friday, Mr McFarlane signalled Westpac was reviewing pay structures in its current financial year and could amend its approach, pending consultation with shareholders.

“I have a personal view on this … I’m not in favour of short-term incentives. I would prefer remuneration to be much longer term for the most senior members of the bank, including the chief executive,” he said. “I’d like that to be a position going forward. We don’t have a plan on that but the remuneration committee will consider the issue.”

While shareholders endorsed pay, they lobbed a 13 per cent protest vote against the re-election of non-executive director Peter Nash, who is chairman of the board audit and legal, regulatory and compliance committees. He was still re-elected, however, and Mr McFarlane, who took the chairman’s reins in April, was easily elected to the board with 94.7 per cent of votes in favour.

Shareholders also overwhelmingly signed off on the granting of performance share rights to Westpac CEO Peter King.

But the bank continues to grapple with regulatory issues. Last week, Westpac entered a court-enforceable undertaking in which the banking regulator hit out at its slow progress in fixing problems. The Australian Prudential Regulation Authority has also forced Westpac to hold $1bn in additional capital due to risk management issues.

The Australian Shareholders’ Association expressed concerns at the AGM about Westpac’s run-in with regulators over the incorrect calculation of its liquidity ratios.

Mr McFarlane responded by saying the bank had “dealt with” accountability over the matter for those involved. The Australian recently revealed Westpac conducted a probe into liquidity reporting failings in New Zealand which led to the departure of a treasury executive.

Westpac’s shares closed 0.2 per cent lower at $19.95 on Friday.

Mr McFarlane stressed the need for real change at Westpac.

“Australia’s oldest company now needs to change, and fortunately, we have acted quickly … However, I know from past experience implementing meaningful change takes time and persistence.”

Mr King said shareholders were “rightly disappointed” with the bank’s compliance shortcomings, but pointed to the axing of short-term bonuses and other consequences imposed on 38 individuals over the failings.

“This simply should not have happened, and I apologise. I also recognise that the civil penalty and the impact of COVID resulted in lower dividends and this made it hard for many of you.

“While our failings were not intentional, significant changes and consequences have occurred.”

Westpac restarted dividend payments in the latter half of its financial year, which ended September 30, despite full-year cash earnings tumbling to $2.61bn due to a weak operating environment and expected COVID-19 loan losses.

The bank declared a final dividend of 31c per share after not making an interim payment.

Mr King did provide some optimism on the outlook in his speech to shareholders.

“It has been encouraging to watch the economy quickly recover as states exit their various stages of lockdown. I’ve been particularly pleased to see many customers restart repayments,” he said.

“The government’s support has played a critical role in helping Australian families and keeping businesses afloat and we expect the economic recovery to continue through next year.

“Nevertheless, some customers will find conditions difficult,” he said.