Westpac hit by another $341 million in refunds

Ross Greenwood speaks to Shaw and Partners banking analyst Brett Le Mesurier as Westpac’s full-year profit will be down $1.13 billion after it announced a $341 million charge for customer remediation.

Ross Greenwood:  Westpac today has indicated that there will be further provisions made as a result of customer remediation for the second half of this financial year. The profit is now expected to be some billion dollars lower, $958 million lower in this period of time after a further $341 million after tax of initiatives were announced. Brett Le Mesurier is the banking analyst with Shaw and Partners online right now. Brett, many thanks to your time.

Interview with: Brett Le Mesurier, Banking Analyst, Shaw and Partners

Brett Le Mesurier: It’s my pleasure, Ross.

Ross Greenwood:  Brian Hartzer has indicated now that the compensation bill for the bank since 2017 is more than $1.9 billion. Now it’s huge money, it’s obviously significant compensation. Do you get a sense now that all of the banks- and I got this out of the Commonwealth Bank’s annual meeting,I must say, are trying to put this in the rear vision mirror, put it all behind them, make these compensations as large as they can so they never have to go back and revisit them?

Brett Le Mesurier: That’s certainly the objective, but given that the amounts keep on getting bigger, it seems like that’s a really difficult exercise for them. For example, Westpac today said that the interest that they’re going to have to pay on those customer remediation payment is going up, and that’s a major factor. That’s why their provisions have going up today. There seems to be just another reason every time for these numbers to keep on escalating.

Ross Greenwood:  One of the things that he said today is this part about get it right, put it right initiative. “We are determined to fix these issues and stop these errors occurring.” With organizations this large, is it realistic for a bank chief executive to say that they can ever stop these errors occurring? It seems to be an ongoing, almost endemic industry-wide problem?

Brett Le Mesurier: Yes, these issues will continue to occur. Obviously, in wealth management because the major banks are exiting that business. The number of products they have is so significant that it’s difficult for them to guarantee that there will no future errors. What they can, of course, try to do is make sure that the errors and the costs of the errors are much smaller than they currently are, which, as you mentioned are running into the billions of dollars.

Ross Greenwood:  What we’re talking about here is the best part of $5 billion from our major banks. We’ve got the National Australia Bank setting aside next to $1.2 billion, Commonwealth Bank remediated $2.2 billion to customers in the past year alone, ANZ $651 million, it will hit its half-year profits and then you’ve got Westpac, largely it’s going to be close on $1.1 billion. It’s a significant amount of money for our banking industry to bear and it is an awful lot of mistakes that appear to have been made over a relatively short period of time.

Brett Le Mesurier: Yes, and it’s largely in relation to the wealth management businesses but since they’ll be exiting those or have exited those then that large contribution won’t be there anymore but there are still substantial contributions that they have to make from their banking business. Just to give you some bigger numbers, Ross, the total including 2018 for ANZ is 1.6 billion pre-checks, 2.4 billion for NAB, 1.8 billion for Westpac and of course Commonwealth Bank, if you include AUSTRAC is at least 3 billion.

Ross Greenwood:  It is really eye-watering amounts of money. Brett Le Mesurier is the banking analyst with Shaw and Partners. Always great with his time. Those Westpac shares today down by a quarter of a percent, seven cents. That update was handed out late to the market today, $28.91. Brett, many thanks for your time. We’ve got more Money News coming up.

Image source: 2GB

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