Westpac warns of more lawsuits, regulatory investigations
Westpac has issued a warning that its earnings and growth are under threat as it braces for mounting costs related to the money-laundering scandal that engulfed the bank last year, with losses compounded by slow growth from the coronavirus and bushfire season.
In a trading update on Wednesday, Westpac said the number of regulatory investigations and reviews into the group had risen and the lender expected to "incur additional expenses" related to this forcing it to "reconsider its current cost growth expectations".
In November last year, financial intelligence agency AUSTRAC filed an explosive statement of claim with the Federal Court alleging the bank breached anti-money laundering laws 23 million times, some of which were tied to child exploitation in the Philippines. The scandal threw the lender into turmoil and claimed the scalps of now-ousted chief executive Brian Hartzer and chairman Lindsay Maxsted.
Westpac's banking activity and growth is likely to suffer this fiscal year in the ongoing fallout from the bank's money laundering scandal. Credit:Getty Images
Since then, Westpac has signalled it would not dispute the majority of the allegations and the penalty is expected to reach the billions of dollars. The bank was hit with a $500 million capital charge by the prudential regulator and is gearing up to defend two shareholder class actions, one from Melbourne-based firm Phi Finney McDonald and the other from global investor firm Rosen. Westpac said other similar lawsuits may be filed and is bracing for litigation costs to balloon.
The bank also flagged the ongoing investigations by the Australian Securities and Investments Commission and APRA related to the money-laundering allegations, claiming the "outcomes of these investigations [is] unknown".
Westpac provided an update on the progress of its response plan where three new bodies have been established to improve operations – a board committee for financial crime, an independent consultant engaged to determine management accountability and another panel to provide recommendations to the board on risk and compliance.
The bank has beefed up its screening and reporting system to ensure transactions "indicative of child exploitation" are reported to AUSTRAC within 24 hours. The financial crime team now report directly to chief risk officer David Stephen.
In addition to fallout from AUSTRAC's lawsuit, the bushfires, storms and coronavirus are expected to have an economic impact on the nation's oldest bank that may "ultimately affect banking and growth".
Insurance claims from the severe weather reached $140 million last week as Westpac's economics arm downgraded its GDP growth forecast from 2.4 per cent to 1.9 per cent. While the spike in claims will have a small impact on Westpac's credit quality, the slow growth is looking like it will hurt the lender's books.