November 26, 2019 17:10:46
The cliche is, if you’re in a hole, don’t dig deeper.
But this is typically what Australia’s big four bank bosses do when they find themselves in huge trouble.
And this is precisely what Westpac management has done for almost one week, repeatedly refusing to hold its top bosses accountable for what is shaping up to be the worst episode in the bank’s more than 200 years of operation.
The charade finally ended today, when in an announcement to the ASX, Westpac said that its chief executive Brian Hartzer had resigned and its chairman Lindsay Maxsted, who has been on the Westpac board since 2008 and chairman since 2011, would “bring forward” his retirement to early next year.
It was last Wednesday that AUSTRAC released its statement of claim including allegations that Westpac facilitated transactions enabling child exploitation in the Philippines.
More than 23 million transactions are alleged to have breached anti-money laundering and counter-terrorism finance laws, and the bank is facing the prospect of fines that may total more than $1 billion.
But that’s just the start of Westpac’s nightmare; one that’s likely worsened as its top executives have for days refused to take responsibility for the alleged failures — even going so far as blaming more junior staff.
While Westpac management has failed to take AUSTRAC’s allegations seriously, everyone else has.
There are now investigations underway from the Federal Police, the corporate regulator (Australian Securities and Investments Commission) and the prudential regulator (Australian Prudential Regulation Authority).
Shareholder lawsuits on the cards
On November 4, when the bank announced a full-year profit of $6.78 billion, it went to shareholders seeking a $2.5 billion capital raising.
Mr Hartzer noted at the time that “the raising also creates flexibility for changes in capital rules and for potential litigation or regulatory action”.
But shareholders were left in the dark, completely unaware of the storm that was about to hit.
Now, massive shareholder lawsuits are likely.
There’s been the announcement of a potential class action (and others may soon follow) by law firm Phi Finney McDonald.
There’s been a warning of a possible ratings downgrade from Moody’s.
There’s been wide political condemnation.
Prime Minister Scott Morrison had said “these are some very disturbing transactions involving despicable behaviour” and that “there has to be some understanding of accountability for when these things happen”.
Treasurer Josh Frydenberg noted AUSTRAC’s assessment that “there has been indifference by the [Westpac] board, there’s been a systemic failure by the bank, and there’s been inadequate oversight”.
Attorney-General Christian Porter said “this is as serious as it ever gets”, noting “laundered money finances terrorism, international crime” and other “horrendous” offences outlined by AUSTRAC.
Home Affairs Minister Peter Dutton on Monday used parliamentary Question Time to accuse Westpac of giving “a free pass to paedophiles”.
Shadow Treasurer Jim Chalmers has said the behaviour of Westpac was “nothing short of disgraceful” and there had been “a failure of leadership”.
More than $6 billion wiped off Westpac’s share price
All this has seen Westpac’s share price plummet.
Westpac share price is down 11 per cent since the announcement of its $2.5 billion capital raising on November 4.
And since AUSTRAC’s Wednesday announcement about the alleged breaches, the bank has seen 7 per cent or $6 billion of value wiped off its share price.
Westpac’s share price was back up 1.5 per cent late this morning at $24.81.
But it is immense shareholder discontent that finally forced Westpac’s board to act.
Mr Hartzer, who last week promised he would stay and “fix” the problem, will finish next Monday and chief financial officer Peter King will become acting chief executive.
Director Ewen Crouch, the chair of the board’s risk and compliance committee, will not stand for re-election as planned at Westpac’s annual general meeting on December 12.
Westpac CEO resigns, but gets paid $2.7m
Westpac said Mr Hartzer would be paid $2.7 million, basically for doing nothing for the next 12 months while serving out his notice period.
He will not get a short-term bonus this year and will lose any long-term bonuses that have not already vested, the bank said.
Westpac will also abandon a motion calling for shareholders to approve long-term bonuses for management.
“As CEO I accept that I am ultimately accountable for everything that happens at the bank,” Mr Hartzer said in the statement released by Westpac today.
“And it is clear that we have fallen well short of what the community expects of us, and we expect of ourselves,” Mr Hartzer added.
Mr Maxsted said that after seeking feedback from stakeholders, including shareholders, “it became clear that board and management changes were in the best interest of the bank”.
Why was this not the clear message from both men last week when AUSTRAC’s allegations first surfaced? Why didn’t they take responsibility immediately?
Instead, Mr Hartzer is reported to have told staff during a meeting on Monday that the crisis was “not an Enron or Lehman Brothers” and mainstream Australians were not overly concerned.
“We all read the Fin (The Australian Financial Review) and The Australian, and we all read that and think the world is ending,” he was quoted as saying in The Australian.
“But actually, for people in mainstream Australia going about their daily lives, this is not a major issue, so we don’t need to overcook this,” he allegedly said, while also reportedly cancelling the bank’s Christmas party.
It is safe to assume that most Australians would be concerned that one of Australia’s major banks may have given paedophiles the financial capacity to commit crimes.
Child exploitation allegations may stick
The most concerning part of AUSTRAC’s lawsuit relates to less than half a million dollars of funds that a dozen Westpac customers paid to people in the Philippines.
One of the Westpac customers allegedly paid someone in the Philippines who was later charged with “live streaming of child sex shows and offering children for sex”.
Another customer already had a conviction for child exploitation but was allegedly not properly monitored.
Six Westpac customers repeatedly travelled to the Philippines or South-East Asia.
AUSTRAC said the payments should have been detected and stopped because they were consistent with the types of transfers made by people involved in child exploitation.
“Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies, consistent with AUSTRAC guidance and their own risk assessments,” AUSTRAC chief executive Nicole Rose said.
“Serious and systemic non-compliance leaves our financial system open to being exploited by criminals,” Ms Rose added.
Beyond the specific child exploitation allegations, AUSTRAC alleges Westpac failed to report more than 19.5 million international funds transfers over five years, amounting to $11 billion.
This Ms Rose said, resulted in “significant loss of intelligence” for the financial crimes agency.
It is about one year since Westpac faced the banking royal commission.
At the time, it seemed to be the least worst of the big four bank horror stories that surfaced. But now, Westpac is the main horror story.
Not only will the financial pain of this case drag out for years.
But the bank’s reputation is possibly irreversibly damaged — it will now always be known as the Australian bank that may have facilitated paedophiles.
November 26, 2019 14:01:08