Westpac Banking Corporation (ASX: WBC)
On 12 December 2019, the bank wrapped up its 2019 Annual General Meeting. The shareholders were concerned about the matters with AUSTRAC related to the breach of AML/CTF regulations.
Acceptance & Accountability
In his opening remarks, Mr Lindsay Maxsted stated the distress caused by the issues raised by AUSTRAC, and the Board has been left shaken by the incident while accepting that the Board has let the down the shareholders of the 200-year old iconic Australian company.
While legal proceedings are underway, the impact of the AUSTRAC matter could not be quantified at present. Further, the bank has strengthened its policies, data systems, processes and controls, and increased the headcount of financial crime specialists in the bank.
Meanwhile, there have been many efforts that the bank has undertaken to rectify the faulty processes. A new Board committee is also formed to emphasise on financial crime, and the committee has appointed Promontory in managing this risk.
The bank would also appoint three leading governance experts to consider the expected report by Promontory. And, these reviews would be shared with the shareholders, and market participants.
Change in Culture
The Chairman noted to strengthen the ‘speak-up’ culture, and the work is underway, according to him. In the meantime, the bank launched a single whistle-blower approach with the introduction of a quarterly initiative ‘Navigate’ that would focus on bank-wide cultural training sessions.
Further, the bank had conducted Culture, Governance and Accountability (CG&A) self-assessment in the previous year. The assessment was directed to assess the risk culture, governance and accountability.
CG&A self-assessment concluded that the practices of the bank usually underpin sound management of non-financial risks. However, the report has confirmed that Westpac’s management of non-financial risk is less mature than the management of financial risks.
It was noted that the bank remains strong with sound capital, funding and liquidity metrics along with strong asset quality. However, the dent on operating conditions is industry-wide that contributed to the subdued performance of the bank in the financial year 2019.
Meanwhile, the bank has made significant progress in the previous year, which has impacted its cash earnings. Nonetheless, the steps that impacted the earnings would allow improving the performance over the long-term.
Capital & Dividends
With a strong capital framework, the capital position of the bank remains strong. Over the years, the bank’s capital position has been strengthened while average ordinary equity has been doubled over the past decade.
Over the past decade, the CET1 ratio has improved from 7 per cent to 10.67 per cent as of September 2019. Also, the bank has raised additional capital in November this year to improve the capital buffer above regulatory guidelines.
The fresh capital allows the bank to deliver the customer proposition amid a weakening economy. And, it allows the bank to work on the additional capital requirement change by APRA and RBNZ, or any possible litigation.
Considering the best long-term interest of the bank, the Board decided to cut the dividend payment in the previous year, maintaining a pay-out ratio of 79%.
In last AGM, the bank suffered a strike against 2018 Remuneration Report. And, the Board was acquainted of the message passed by the shareholders. Over the last year, the bank was engaged with its institutional, retail shareholders to take the feedback.
As a result, the bank undertook several decisions, including lowering the Board fees by 20 per cent in 2019, reducing total target and maximum remuneration for group executive and CEOs, the introduction of clawback etc.
Acting Chief Executive Officer of the bank – Mr Peter King, stated that the bank had made progress in its strategy, especially in improving its technology infrastructure and migrating more activity to digital channels.
The bank continues to modernise its technology, network, infrastructure while improving on speed and reducing costs. As a result, the bank did not suffer any major system outages in the financial year 2019.
During the year, WBC also launched a customer service hub that has allowed the bank to improve its processes in mortgage processing and service. It continued the rollout of Panorama, which is the fastest-growing investment platform in the market. Also, the bank completed the New Payments Platform, which enables real-time payments capabilities.
Further, it was said that the bank is focusing on delivering customer value that would drive the performance by making banking easier, efficient, and exceed the expectations of customers.
On outlook front, the acting CEO stated that the operating conditions continue to be weak coupled with low growth, and an expectation that interest would fall along with ongoing regulatory intensity.
With such an environment, the performance of the bank would likely be lower in 2020, but Westpac expects balance sheet growth without any significant deterioration in asset quality.
Nonetheless, it is anticipated that there would be additional costs given the remaining regulatory issues.
2019 AGM Results
2019 AGM Results (Source: WBC Announcement)
In results, the vote on remuneration report resolution resulted in over 25 per cent of votes against the report, meaning a second consecutive strike. As a result, resolution number 5 was also voted, which was not passed by shareholders.
On 13 December 2019, WBC was trading at $24.580, up by 2.076% (at AEST 1:26 PM).