Westpac expects to make $900m provision in relation to AUSTRAC claim

Maria Nikolova

In addition, Westpac expects approximately $130 million cash earnings impact of costs linked to the AUSTRAC response plan.

Westpac today announced it expected new and increased provisions and asset write-downs totalling approximately $1,430 million after tax which will dent the Group’s earnings in the first half of 2020 (1H20). Statutory net profit after tax will also be reduced by these items.

Following the proceedings launched by AUSTRAC on November 20, 2019, Westpac has been in discussions and mediation with AUSTRAC seeking to agree a Statement of Agreed Facts and Admissions along with a proposed penalty that could be put to the Court on a joint basis with AUSTRAC.

Westpac has considered the available information and expects to make a provision of $900 million for its potential liability in relation to the AUSTRAC claim.

The Court’s decision on an appropriate penalty will involve balancing many different competing and complex factors and the exercise of discretion, Westpac says. The actual penalty paid by Westpac following either a settlement and joint submission on a penalty, or a hearing, and in each case as determined by the Court, may be materially higher or lower than the provision.

Further, Westpac expects approximately $130 million cash earnings impact of costs linked to the AUSTRAC response plan. On 25 November 2019, Westpac announced its AUSTRAC response plan to improve its financial crime program, support industry initiatives to enhance financial crime monitoring and provide additional support and resources to organisations working to eradicate child exploitation. The total pre-tax cost is $160 million and includes the previously disclosed response plan estimates ($80 million) along with higher legal expenses and additional costs linked to enhancing the Group’s financial crime program.

Other items to affect Westpac’s results in the first half of 2020 include:

  • an increase in provisions for customer refunds, repayments and litigation of around $260 million after tax;
  • a reduction in the value of several assets costing around $70 million after tax; and
  • costs of changes in the provision of group life insurance of around $70 million after tax.

Following the $2.8 billion of capital (around 63 basis points to the CET1 capital ratio) raised in the half, and payment of the final 2019 dividend, Westpac’s CET1 capital ratio was 10.8% at December 31, 2019. The impact of the items disclosed today on Westpac’s CET1 capital ratio is estimated to be around 30 basis points, noting that some items have no impact on capital as they are already capital deductions.

These items, and the likelihood of a higher impairment charge, mean that Westpac expects to report lower cash earnings in 1H20, which will be taken into account when considering dividends.

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