Westpac investors hoping for a super-quick resolution to the bank’s alleged 23 million breaches of financial crime laws will be disappointed.
This column understands the bank and its opponent Austrac won’t have an agreed statement of facts ready for a while yet, and certainly not before a March 2 case management hearing.
Drafting of the agreed statement of facts is well under way, though, involving Westpac’s legal team, the Australian Government Solicitor and Austrac.
While the parties agree on the bulk of matters, there are said to be a few points of difference.
March 2 is the next court date where the parties will front the most senior judge on the Federal Court, Chief Justice James Allsop.
It is unclear whether he will continue with the matter but he did commit to managing the case in the early stages.
The agreed statement of facts is a key document that comes ahead of deliberations over a financial penalty. Most banking analysts see the financial settlement coming in at $1bn or more.
The court must sign off on the penalty and when it occurs Westpac may take out the mantle for the biggest ever civil penalty in Australian corporate history. That is, if the penalty surpasses Commonwealth Bank’s $700m payment.
The Austrac matter against CBA took about 10 months to resolve. While it has only been three months since the regulator lobbed its legal action against Westpac on November 20, investors will be keen for the bank to rule a line in the sand over the whole affair.
The scandal prompted the departure last year of then Westpac chief executive Brian Hartzer and brought forward the retirement of chairman Lindsay Maxsted.
And the winds of change have already started sweeping through the bank. Last month, Westpac announced banking veteran John McFarlane — former Barclays chairman and ANZ CEO — as its new chairman. A global search for a new Westpac CEO is under way as is a multi-pronged accountability review.
Westpac will want the statement of agreed facts, and the potential penalty, cleared up by its half-year earnings results in May. If that were to occur, the Morrison government would also applaud the timing given this year’s federal budget falls on May 12.
The allegations against Westpac relate to failures to report international funds transfers to Austrac and also link the bank to payments facilitating child exploitation.
Spice it up
After last year’s dramatic collapse of the $3.6bn Latitude Financial float, ASX candidates are hoping 2020 is a better year.
Non-bank lender Pepper Australia is among those set to test the market. The group’s $1bn listing plans are in full swing, with it targeting 2020 profits of about $83m.
Sources said preliminary work by Pepper was placing a valuation on the operations of 12 to 13 times earnings, and the business is said to have a cost-to-income ratio in the order of 45 to 50 per cent.
As a point of reference ASX-listed Resimac, also a non-bank lender, trades on an estimated 2020 price-earnings ratio of 13.4 times, according to Bloomberg.
Sources said the company was expected to seek to raise several hundred million dollars from investors as part of the transaction.
That leaves plenty of stock on the table to give the market some confidence as Pepper looks to capitalise on a rebound in the housing market. Pepper has been in the throes of an offshore educational roadshow with investors spanning Asia and North America.
Bankers at Citigroup and Macquarie Capital are managing the float plans alongside KKR Capital Markets and independent adviser Reunion Capital Partners.
The initial public offering is being targeted for May but the exact timing hinges on financial market conditions and the pending separation of Pepper’s domestic and offshore operations.
Private equity giant KKR & Co — now the majority shareholder — took Pepper off the ASX in 2017 in a $657m takeover, snapping up its operations in Australia, Asia and Europe.
Due to the way KKR structured the 2017 acquisition — allowing investors to roll into a new corporate entity which completed the purchase — the private equity group is flanked by other shareholders on the register.
Former Pepper chair Seumas Dawes (also a former adviser to Paul Keating) and CEO of Pepper Group Mike Culhane took up that option.
The latest Pepper IPO will only include the Australian and New Zealand operations, where it is a lender of traditional mortgages and non-conforming or “near prime” loans, which typically sit outside the banks’ lending criteria. Pepper also has car and equipment finance lending operations here and a loan servicing business.
The Australian business has a loan book of more than $10.7bn, according to the latest presentation to Pepper’s debt investors on its website.
Last month, financial services company Link Group agreed to buy Pepper’s European operations in a $322m (€200m) deal.
Under the terms of that deal, Link is paying $266m upfront for Pepper European Servicing, with a further $56m on the table if certain total assets under management thresholds and growth milestones are met.
Pepper’s local float plans, if successfully executed, will see domestic boss Mario Rehayem lead the ASX-listed company.
The company’s owners will be hoping markets remain buoyant in coming months.
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