Westpac faces wrath of super funds

The nation’s most powerful superannuation funds have turned on Westpac ahead of its critical annual meeting next month.

Brian Hartzer, chief executive officer of Westpac, and Peter King, chief financial officer. Picture: Bloomberg

The nation’s most powerful superannuation funds have turned on Westpac ahead of its critical annual meeting next month, with the bank facing a second strike on its remuneration report and possible defeat of longer-serving directors up for re-election.

As one investor condemned the nation’s oldest for being “too big to fail and too big to properly govern”, industry groups and fund managers lined up to attack Westpac for facilitating customer payments for suspected paedophiles into the Philippines.

Directors, led by chairman Lindsay Maxsted, are understood to have held a board update on Wednesday night. Both chief executive Brian Hartzer and chairman Lindsay Maxsted pulled out of the Business Council of Australia annual dinner on Wednesday to deal with the fallout.

Australian Council of Superannuation Investors chief executive Louise Davidson, who speaks on behalf of 39 local and international funds with $2.2 trillion under management, said the failure of oversight from the Westpac board alleged by Austrac was “incredibly concerning”, particularly given the long period over which the issues had occurred.

“The stream of new revelations around misconduct in the banking sector is doing nothing to rebuild public trust,” Ms Davidson said.

“We expect the board and the CEO of Westpac to clearly explain how the issues identified by Austrac occurred and where accountability will fall.

“Investors take these matters seriously and will be engaging with the board ahead of the annual meeting.”

Investors are also likely take aim over the bank’s controversial, $2bn institutional placement earlier this month.

The 79m shares were placed to institutions at $25.32, above yesterday’s $25.16 closing price.

While some big shareholders questioned the need for the raising at the time, saying Westpac had enough capital, it’s now thought that the bulk of the funds will be soaked up by an Austrac penalty.

Banking analyst Brian Johnson of brokerage Jefferies’ said Westpac “will likely settle for a meaningful, painful but not catastrophic civil penalty in the hundreds of millions of dollars range”.

But he added the Austrac statement “reads very badly” for the bank but its balance sheet would start to “looks skinny” given the potential civil penalty.

“Can Westpac senior management and the Westpac board survive such scathing criticism and allegations of inaction? The Commonwealth Bank Austrac episode, and even NAB’s following the Financial Services Royal Commission, suggests probably not,” Mr Johnson said.

Cbus Super chief investment officer Kristian Fok, who oversees $54bn in member assets, described the Westpac allegations as “grave and egregious”.

“Cbus members understand that poor corporate behaviour destroys the value of their investments over the long term,” Mr Fok said. “Our members expect us to engage and vote to protect their interests.”

UniSuper investment chief John Pearce said the fund was yet to determine how it would vote on shareholder resolutions at the December 12 annual meeting, but expected to be better informed next week after meeting Westpac.

Austrac is seeking civil penalty orders against Westpac, alleging the bank breached anti-money laundering and counter-terrorism financing laws on more than 23 million occasions involving $11bn in the period November 2013 to September 2018.

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The financial intelligence agency alleged Westpac failed to carry out appropriate due diligence on transactions to the Philippines and Southeast Asia, where there were known risks of child exploitation.

The contraventions, it alleged, were the result of “systemic failures in the control environment, indifference by senior management, and inadequate oversight by the board”.

Coming under focus will be Westpac’s institutional business headed up by former CBA executive Lyn Cobley given this division was the source of the alleged transactions.

Mr Hartzer this week said he was “personally disgusted and appalled” by the subject matter of some of the transactions.

The bank’s share price slid a further 2 per cent on Thursday after shedding 3.3 per cent the previous day, as investors tried to get a handle on the bank’s likely penalty given the only reference point was the $700m fine paid by Commonwealth Bank in relation to money laundering transgressions.

Five Westpac directors are up for re-election at next month’s annual meeting, with former Allens partner Ewen Crouch, 63, and ex-ANZ chief financial officer Peter Marriott, 62, the longest serving, having both joined the Westpac board in 2013.

Mr Crouch is considered to be the more vulnerable to a strong protest vote.

As to the bank’s remuneration report, Westpac suffered a humiliating, 66 per cent “no” vote at the 2018 annual meeting.

If the no vote again exceeds 25 per cent, shareholders will vote on a board spill.