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Australian regulator investigates Westpac directors, executives after scandal

12/16/2019 | 09:10pm EDT
FILE PHOTO: A woman walks past an illuminated logo for Australia's Westpac Bank in Sydney

Australia's banking regulator will use its increased investigative powers for the first time to examine whether Westpac Banking Corp directors and executives broke the law as part of the bank's money laundering scandal.

Westpac will be required to hold an extra A$500 million (265 million pounds) in capital after the Australian Prudential Regulatory Authority (APRA) announced an investigation into the bank's alleged money laundering breaches.

Westpac shares were down 1.2% in early afternoon trade on Tuesday, while the broader ASX200 was 0.1% higher.

Bell Potter analyst TS Lim said that while the APRA capital charges could be absorbed by the bank, the investigation would be a further distraction for its executive team.

"The bigger issue is that Westpac will be reviewing the risk practice at the same time that the bank is going to be transitioning to a new chief executive," he said.

In a research note to clients, Macquarie analyst Victor German said Westpac's increased "compliance and regulatory expenses will continue to weigh on earnings in the short to medium term" as the bank worked through the AUSTRAC claims.

APRA said in a statement the lender would now need the extra capital to "reflect the heightened operational risk profile of the bank".

It is the first time APRA has carried out a formal investigation using the Banking Executive Accountability Regime (BEAR) legislation which came into effect in July last year.

Under the laws, APRA has the powers to directly disqualify directors and executives itself rather than pursue people through the Australian court system.

APRA will investigate whether Westpac's directors or staff gave false or misleading information to auditors, a charge that carries up to five years jail.

Westpac Chairman Lindsay Maxsted, who will retire early as a result of the allegations, said the bank "accepted the gravity" of the AUSTRAC claims and would co-operate with the APRA investigation.

"As previously stated, these shortcomings are unacceptable and we are determined to urgently fix these issues and lift our standards," Maxsted said in a statement to the ASX.

Westpac in June was ordered by APRA to hold an extra A$500 million following a self-assessment programme which found it needed to toughen its oversight of "non-financial risk".

Australia's second-largest bank by market capitalisation was accused by AUSTRAC, the financial crimes agency, last month of breaching anti-money laundering laws up to 23 million times between 2013 and 2019..

The investigation could take up to two years, a source with direct knowledge of the matter said.

"AUSTRAC's statement of claim in relation to Westpac contains serious allegations that question the prudential standing of Australia's second-largest bank," APRA Deputy Chairman John Lonsdale said in the statement.

"While Westpac is financially sound, there are potentially substantial gaps in risk governance that need to be closed."

(Reporting by Scott Murdoch; Editing by Lisa Shumaker and Stephen Coates)

By Scott Murdoch

Stocks treated in this article : S&P/ASX 200, Westpac Banking Corporation

© Reuters 2019
Stocks mentioned in the article
ChangeLast1st jan.
ASX LIMITED -0.42% 81.09 End-of-day quote.12.63%
DEERE & COMPANY -0.41% 342.91 Delayed Quote.27.52%
S&P/ASX 200 0.02% 7415.4 Real-time Quote.12.55%
WESTPAC BANKING CORPORATION 0.58% 25.83 End-of-day quote.33.35%
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Analyst Recommendations on WESTPAC BANKING CORPORATION
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Sales 2021 21 054 M 15 765 M 15 765 M
Net income 2021 5 340 M 3 998 M 3 998 M
Net Debt 2021 - - -
P/E ratio 2021 19,2x
Yield 2021 4,31%
Capitalization 94 649 M 70 882 M 70 874 M
Capi. / Sales 2021 4,50x
Capi. / Sales 2022 4,60x
Nbr of Employees 33 607
Free-Float 99,5%
Duration : Period :
Westpac Banking Corporation Technical Analysis Chart | WBC | AU000000WBC1 | MarketScreener
Technical analysis trends WESTPAC BANKING CORPORATION
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 15
Last Close Price 25,83 AUD
Average target price 27,56 AUD
Spread / Average Target 6,72%
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Managers and Directors
Peter Francis King Chief Executive Officer, MD & Director
Michael Rowland Chief Financial Officer
John McFarlane Chairman
Scott Collary Chief Operating Officer
Leslie Wilson Vance Group Executive-Financial Crime & Compliance
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