‘A once-in-a-lifetime event’

Westpac’s profits plummeted by a massive 70 per cent to $993 million as the one-two punch of COVID-19 and the looming AUSTRAC enforcement bit into its balance sheet.

“It was a tough six months and a disappointing result,” CEO Peter King told shareholders. 

While the loss stemmed primarily from higher provisions for credit losses, Westpac is expecting to pay AUSTRAC $900 million for its 23 million breaches of anti-money laundering/counter-terrorism financing (AML/CTF) legislation late last year. But Mr King revealed that the matter was not yet decided, leaving the final penalty up in the air. 

“At this point we haven’t been able to reach an agreement and mediation is still continuing,” Mr King said. 

But Mr King said that Westpac was well positioned to weather the bad result, and had not accessed the RBA’s new term funding facility in the half. 

“Westpac’s balance sheet remains strong,” Mr King said. “We are well capitalised and our liquidity and funding metrics are comfortably above regulatory requirements. In light of the changed economic outlook we have increased Westpac’s provisions for expected credit losses to $5.8 billion, which includes approximately $1.6 billion of additional impairment charges predominantly related to COVID-19 impacts,” Mr King said.

While NAB paid out a reduced dividend, Westpac announced that it would defer a decision on its dividend, joining ANZ in following the guidance of regulators. 

“After taking into account APRA’s guidance, the board has deferred the decision on the interim dividend and we won’t be paying a dividend on the 20th of June,” Mr King said. “We recognise this impact on shareholders, particularly our retail shareholders. However, this is the prudent decision in the current uncertain environment. We’ll continue to review dividend outcomes over the course of the remainder of the year.”

Wealth shake-up 
Westpac also flagged drastic changes to several of its businesses, with its wealth platforms, superannuation and retirement products, and general and life insurances being moved to a “specialist business division”. 

“We have several businesses where we don’t have sufficient scale or where the returns are insufficient for the risk,” Mr King said, adding that some of the businesses “may ultimately be more successful under different ownership”.

The Westpac Pacific business will also be managed in this division to “simplify the institutional bank portfolio”. Jason Yetton has been appointed chief executive for specialist businesses, and will commence the new role on 18 May 2020. 

“Jason is a proven executive who held senior positions at Westpac for many years, including group executive, Westpac Retail & Business Banking and general manager, BT Customer Solutions, and was most recently an executive at CBA,” Mr King said. 

The outlook 
Westpac’s outlook for the wider Australian economy is also particularly gloomy, with unemployment set to peak at 9 per cent in June and drop to 7 per cent by the end of the year and economists warning that a sustained recovery “cannot be expected until December” although consumers and businesses are expected to remain cautious into 2021. International travel restrictions will also hit inbound tourism and international student arrivals. 

Despite this, Mr King is optimistic about the outcome. 

“We are in the middle of a once-in-a-lifetime event,” Mr King said. “The impacts have been rapid, and in many cases severe… COVID is unlike other downturns, in that the economy is effectively being held back. One of the characteristics of previous recessions is that it’s often not clear how to get out and the economy needs to be restarted. Australia’s not in that position, As we progressively emerge from the shutdown, economic activity will come back.”