Westpac profits hit by $1.13 billion in customer refunds

The Sydney Morning Herald Finance 0 month ago

Westpac's full-year profit will take a $1.13 billion hit from costs caused by customer compensation and a restructure of its wealth arm, as bank shareholders continue to pay the price for past misconduct and mistakes.

The banking giant on Wednesday said its results on November 4 would include a $341 million charge for customer remediation, as well as a further $36 million charge linked to its "wealth reset," a restructure in which the bank quit financial advice earlier this year.

Westpac chief executive Brian Hartzer said the bank would take more provisions for compensation if needed.

Including the $753 million in compensation-linked payments already disclosed in its first half, the bank's cash profit over the full-year will be reduced by $1.13 billion.

Although the second-half charge is smaller than provisions disclosed by National Australia Bank and ANZ Bank in recent weeks, it highlights the ongoing drag on bank profits from refund payments.

"We will continue to review our products and services to ensure they deliver the right outcomes for customers, and if necessary, make further provisions,” Westpac chief executive Brian Hartzer said.

The biggest cause of Westpac's latest compensation pay-outs was the troubled financial advice sector, where banks continue to refund fees that were charged without advisers providing the promised services. Financial advice accounted for $168 million of the profit hit.

The bank's profits will also take a $119 million hit because of a program to refund customers over interest-only loans that failed to convert to principal and interest payments when required.

Bell Potter analyst TS Lim said the charge was slightly higher than he expected, but added that refunds for advice were declining. "Maybe we can see the light at the end of the tunnel," he said.

Westpac shares fell 0.6 per cent to $28.82.

before tax for compensation, and ANZ's said would set aside.

In a sign of the many compliance risks facing the bank, Westpac also flagged the possibility that it could face a "significant financial penalty" from an ongoing anti-money laundering probe.

Westpac said its annual results would include an update on the contingent liability it recently booked over its failure to report a "large number" of international payments to the financial intelligence agency, Austrac.

It said Austrac had issued a number of detailed statutory notices in the past year, demanding further information on the bank's processes, procedures and oversight. The bank has not been told what enforcement action Austrac may take.

"Any enforcement action against Westpac may include civil penalty proceedings and result in the payment of a significant financial penalty, which Westpac is currently unable to reliably estimate," Westpac said.

"Previous enforcement action by AUSTRAC against other institutions has resulted in a range of outcomes, depending on the nature and severity of the relevant conduct and its consequences."

Austrac against financial institutions in August, and it has since then required compliance audits from payments businesses and .

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