What a difference six days made for Westpac

Six days altered the course of history for Westpac. Picture: AAP

The raging inferno engulfing Westpac spread on Monday to the agenda for chairman Lindsay Maxsted’s customary dialogue with investors in the lead-up to the bank’s annual meeting, scheduled for December 12.

With shockwaves still reverberating from an Austrac-launched missile that linked payments by Westpac customers to child exploitation in The Philippines, Maxsted wanted to cover as many bases as possible, hosting face-to-face meetings in his home city of Melbourne but staying on the line if needed as senior non-executive director Craig Dunn played the same role in Sydney.

The Westpac duo did their best but it was a lost cause before they began: there was no coming back from an all-encompassing gov­ernance catastrophe.

John Pearce, who manages $65bn on behalf of UniSuper members and hooked up with the chairman by telephone, says there is something quite “perplexing” about Westpac’s story in light of the $700m penalty paid by Commonwealth Bank in June 2018 for its own money-laundering transgressions.

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“Anything that was labelled Austrac should have been given top priority and brought to the ­attention of the chairman of the risk committee, but it wasn’t,” Pearce tells The Australian.

“I have a lot of time and respect for Lindsay Maxsted and there’s no way he would knowingly have let that happen.”

Only six days, or four business days, elapsed from Westpac learning it had a diabolical Austrac problem to Tuesday’s announcement chief executive Brian Hartzer would depart, Maxsted would bring forward his retirement to the first half of next year and non-executive director Ewen Crouch would not seek ­re-election.

While the chairman mused at the end of a media conference call that it had been “only” six days, one investor grumbled that six days amounted to an Instagram lifetime.

This investor occupied the other end of the spectrum to Pearce’s even-handedness, ripping into Westpac for allowing the crisis to escalate. There was talk among shareholders, he said, that if Maxsted had remained intransigent, there would have been no option but to mount a campaign against his re-election as a BHP director and chairmanship of toll-road ­operator Transurban.

Maxsted says this frustration was never expressed to him face-to-face.

While denied by Westpac, there were also suggestions of a fracture in the boardroom between directors who believed they should hang in and try to tough it out, and those who believed there was zero chance of avoiding the same outcome as CBA and ­National Australia Bank — a CEO and board clean-out.

It was last week, on Tuesday evening, that Hartzer took a dreaded “courtesy” call from Austrac chief executive Nicole Rose, who told him that a Federal Court statement of claim would be lodged the following morning.

The next day Maxsted scanned the 47-page document in his office on the 20th floor of the Westpac building in Kent Street, Sydney.

At first glance, there was no need for wholesale panic.

Austrac wanted civil penalty orders for systemic non-compliance with anti-money laundering and counter-terrorism financ­ing laws, alleging 23 million contraventions including a failure to report 19.5 million international funds transfer instructions worth $11bn over five years until September last year.

But as Maxsted reached page 38 of Austrac’s claim, his stomach started to churn as the claim went into excruciating detail about 12 customers making payments linked to child trafficking, live streaming of child sex shows and child prostitution.

An insolvency specialist and former boss of KPMG Australia, the Westpac chairman has seen some confronting things over his long career in business.

“But certainly, this was sickening and up there with the worst I’ve seen,” Maxsted tells The Australian. “And it was out of the blue; there was no preparation for it in my mind.”

Westpac faced an inescapable problem, which is now at the heart of an independent review commissioned by the board.

While the LitePay channel used to facilitate the offending payments to The Philippines was now fully compliant, there had been a shocking 18-month delay before Westpac ­implemented an Austrac-required update in the product’s transaction monitoring scenarios in June 2018. Those scenarios were frequent, low-value payments over a short period, and Austrac said Westpac had been aware of this by the end of February 2017.

This was the bombshell from which Westpac would never ­recover.

Scott Morrison was appalled but somewhat restrained, Josh Frydenberg was less restrained, and resident headkicker Peter Dutton went all out on Monday, accusing Westpac of “giving a free pass to pedophiles”.

In World Championship Wrestling vernacular, one investor likened Dutton’s intervention to “flying off the turnbuckle”, intent on causing serious injury.

Maxsted’s support for Hartzer was conditional at the weekend on shareholder support for the board’s response plan.

The chairman and Dunn tag-teamed on Monday, spearheading a full day of meetings and calls with institutional shareholders and investor groups.

Among them were Pearce from UniSuper, proxy advisory firms ISS and Ownership Matters, the 39-member Australian Council of Superannuation Investors with $2.2 trillion under management, and the nation’s biggest super fund with more than $180bn in member assets, AustralianSuper.

AustralianSuper alone holds $1.8bn in Westpac shares.

If the feedback from these and other groups was unforgiving, worse was in store on Tuesday morning, when The Australian broke the story of Hartzer’s private, hour-long chat to his executives, exhorting them to “get more mortgages going” and saying the crisis was “not an Enron or Lehman Brothers”.

The CEO’s fate was sealed the night before, when the Westpac board convened on the 21st floor of the Sydney head office, with its panoramic view of Barangaroo.

The meeting began at 7pm, with Maxsted phoning in from Melbourne after this investor meetings. About 90 minutes later, the key decisions had been made — Hartzer out, Maxsted out in the first half of next year and Crouch to surrender his director’s pass.

Chief financial officer Peter King would act as CEO until a permanent appointment was made.

Maxsted said in Tuesday’s media call that it seemed like recent events had taken an eternity. “But it is only six days. It is only six days,” he repeated.