Westpac’s new long-term CEO, Peter King yesterday described the bank’s full results as “disappointing”, but the reality is the bank has no one else to blame but itself.
Yes, COVID-19 made a mess, forcing the bank to provide billions for possible bad debts and to spend more on social distancing and other health-related measures, but so have other businesses, large and small.
The central problem (cost and reputational) was the $1.3 billion fine from AUSTRAC because of the bank’s 23 million or more breaches of money laundering regulations.
“2020 has been a particularly challenging year and our financial result is disappointing,” Mr. King said.
“Our earnings have been significantly impacted by higher impairment charges, increased notable items, and the sharp decline in economic activity. At the same time, we have incurred higher expenses due to increased resourcing to handle unprecedented COVID-19 demands and fixing our compliance issues.”
Every business has been hit with higher COVID-related costs which are going to be a constant now for years to come for businesses large and small and governments, households, and the entire economy.
The bank said capital buffers remained robust to cope with the pressures influenced by the pandemic, with decisions to resume dividend payments in line with guidelines set by the prudential regulator.
Those capital buffers were insisted on by regulators led by APRA and the Reserve Bank and yet banks, led by Westpac and others, objected to the higher capital needs for some time. The regulators eventually got their way.
That said and the moans about higher costs, Westpac is expecting its financial performance will improve throughout next year and 2022.
Mr. King noted impairment costs in the second half of the financial year had fallen due to less one-off payments, and expected levels of bad debts were better than expected.
Westpac reported a net profit of $2.29 billion for its 2020 financial reporting period, down 66% on the previous year. Cash earnings for the period dropped 62% to $2.61 billion.
The board though decided to resume dividends, paying a final-year dividend to shareholders of 31 cents per share.
Last Friday Westpac announced that the board and Mr. King had agreed to amend his employment contract removing the two-year term.
Chair John McFarlane said the Board and Mr. King have had recent discussions and Mr. King confirmed he is committed to the multi-year plan to turn the company around. Reflecting these discussions his employment contract has been amended to a standard 12-month notice period.
“In the short time Peter has been CEO, he has made a significant contribution to Westpac, in a year of unprecedented change,” Mr. McFarlane said.
“He has guided Westpac through the challenges of COVID-19 as well as settling the AUSTRAC matter.
“His strategy reset is already driving fundamental change to how the company operates with clearer accountability, faster decision making, and a focus on improving risk management. He has also refreshed the Executive Team and refocused the Bank on its core markets and products.
Mr. King’s contract terms remain unchanged, except for the removal of the 2-year term.
Westpac said on Monday still has 41,000 home loan repayments on deferral due to the health crisis, which equates to about $16.6 billion, and 4,300 small business loans remain suspended at a value of $1 billion.
“We remain in an uncertain economic environment; however, the recent budget has provided a significant stimulus to businesses and households,” Mr. King said.
“Our economists expect at least half the personal tax cuts will be spent and businesses will respond to the generous depreciation allowances.”
Mr. King became CEO following the departure of Brian Hartzer after the AUSTRAC scandal.
Westpac shares fell 0.6% to $17.80.
The National Australia Bank reports on Thursday.
