The repercussions from Westpac’s alleged breaches of laws aimed at hindering criminal money laundering and the financing of terrorism have included chief executive stepping down from the position as well as senior board members leaving their posts early. The bank also faces more pressure around the timing of its recent capital raise, and it remains unclear whether even more senior executive and board members will be relieved of their roles.
Westpac chief Brian Hartzer will be stepping down from Monday, chairman Lindsay Maxsted will leave the board early, and board member Ewen Crouch, chair of the bank's risk and compliance committee, is said to be not seeking re-election to the board at Westpac's annual general meeting next week. Chief financial officer Peter King, who was due to retire next year, will act as CEO as the board seeks a long-term replacement.
Westpac said Hartzer been given 12 months' notice and will be paid his full $2.7 million salary for the period, though his so-far unvested short and long-term bonuses will not be paid, and he will not be eligible for any future bonuses.
Hartzer had the backing of the board over the weekend in spite of political pressure, while Maxsted met key investors and governance advisers on Monday and was told the bank needed to show more accountability over the crisis. After initially thinking they could ride out the turmoil, and amid reportedly suggesting the bank should not “overcook” the issue or it’s response to it, Hartzer’s goose was indeed cooked after a marathon board meeting that went on past midnight on Tuesday morning.
Speaking about the decision, Maxsted said “As soon as I read the statement of claim, like so many people here and outside of this organisation, I was horrified by what was in it…it was not what I expected.”
"As was appropriate, we sought feedback from our stakeholders, including shareholders, and having done so it became clear that board and management changes were in the best interest of the bank." He also warned against further board repercussions and rejected the idea more heads need to be lopped amid growing calls for more accountability. The head of the Australian Council of Superannuation Investors, Louise Davidson, has stated "we believe that this crisis warrants further board renewal in the new year to support rebuilding public trust.” However, Maxsted rejected the idea of more board changes as "very dangerous," saying there was a "very fine balance" in having accountability without disrupting the business.
Fairfax media reported that a key moment in these shareholder discussions was apparently when ‘an influential proxy firm responded to Maxsted’s protestations about what they knew and when by reading a paragraph from AUSTRAC’s statement of claim: "Since at least 2013 Westpac was aware of the heightened child exploitation risks associated with frequent low value payments to the Philippines and south-east Asia both from AUSTRAC guidance and its own risks assessments. In June 2016 senior management within Westpac was specifically briefed on these risks with respect to the LitePay channel."’
It would seem self-evident that if the bank has failed to adequately address these risks in the last 6 years, anyone defending the bank may be on somewhat thin ice.
Meanwhile, The AFR has reported that Westpac Banking Corp's experienced anti-money laundering chief was told she didn't have the skills for the job and would have to take a more junior role after informing the bank that it faced the largest fine in corporate history. She was offered a different position with the same pay but less responsibility. Instead of managing an operational team of 50, she would oversee fewer than 10 staff and manage policy and communication with regulators. Rather than take the job, she took a redundancy payout and was replaced earlier this year.
Timing Of Capital Raise Questioned
The potential for a shareholder backlash is also apparent, as the bank now faces the prospect of class actions over its large capital raising earlier this month, as well as big corporate clients leaving. Westpac went asking for an extra $2.5 billion to shore up its capital buffers, while creating flexibility for dealing for "potential litigation or regulatory actions". Investors taking up their entitlements would now be more than 10 per cent down on their investment.
Some industry analysts have said investors would be asking why the capital raising wasn’t put off until after Austrac filed its court documents on Wednesday, given that the bank already had adequate capital to meet regulatory requirements. Given the bank mentioned Austrac were in enforcement phase around the time of the annual report, What was the urgency around the timing of the raise? For his part, Maxsted said the bank was “absolutely” confident it had met its disclosure requirements in relation to the capital raising.
There is more to play out with the board facing the shareholders at the bank's annual general meeting on December 12. Executive pay was already a hot topic for the meeting and following recent revelations more questions will no doubt be asked. One commentator has put it like this: “What exactly are these “executives” being paid millions for?? Their business skill? Banks have a captive audience and not much competition. It would seem that their skill is overstated.”