Westpac flags $260m hit to profits from compensation
Westpac's first-half profit will take a $260 million hit from refunding customers in its financial advice, consumer and business banking arms.
The banking giant on Monday said about 90 per cent of the $260 million provision related to problems from previous financial years, and signalled this will not be the end of its compensation costs.
About half the costs related to its financial advice business, which the bank last week said it would sell, and the remainder was for issues in its consumer and business banking divisions.
The update said these payouts did not include compensation for the "authorised representatives" in its financial advice division — self-employed advisers who operated under the bank's financial services licence — because of difficulty in accessing the necessary files.
The bank said it would be assessing provisioning requirements for its authorised representatives as part of its first-half results, to be delivered in early May.
“A key priority is to deal with outstanding remediation issues and refund customers as quickly as possible," chief executive Brian Hartzer said.
“As part of our ‘get it right, put it right’ initiative, we are determined to fix these issues and stop these errors occurring again. We will continue to review our products and services to ensure they deliver the right outcomes for customers, and if necessary, make further provisions.”
The provision, which includes compensation payments and the bank's administration costs, highlights the ongoing pressure on bank profits from past problems in their wealth management divisions in particular.
Analysts last year predicted the big four banks and AMP would set aside roughly another $2 billion in provisions for remediation in 2019, as the industry faces regulator pressure to compensate customers more quickly.
The $260 million first-half provision compares with Westpac's $281 million in provisions for remediation over the full year of 2018.
Bell Potter analyst TS Lim said Westpac appeared to be "clearing the decks", and there was a chance other banks might announce similar provisions before their upcoming results.
"I think because of the impact on their profits they had to announce something, which may also prompt the others to do the same," Mr Lim said.
Westpac said a key reason behind these compensation payments was the charging of "ongoing advice" fees by its financial planners.
It had increased its estimate of the proportion of instances where record-keeping was insufficient, the bank said, and this had lifted the proportion of fees that would be refunded to about 28 per cent.
There were also refunds for customers with interest-only loans who were not automatically switched to principal and interest loans, as well as some payments to business clients who were given business loans when they should have been issued loans covered by consumer lending laws.