26 Oct 2020
Westpac has flagged a $1.2 billion hit to earnings caused by write-downs across its insurance businesses, a growing remediation bill and mounting costs related to the landmark legal case over anti-money laundering law breaches.
The big four bank said on Monday its life insurance business would be written down by $406 million and the group’s disability insurance business would report a loss of $260 million, ahead of its full-year results next Monday.
The losses were partly offset by an increased valuation of its holding of buy now, pay later platform Zip Co by $303 million, which became effective before Westpac sold its shares last week.
Westpac has also put aside an additional $182 million to compensate customers who were sold incorrect loans, overcharged or were provided poor advice. As part of this increased provision, $104 million will pay for running the remediation program and $38 million will be used for settling legal disputes with customers.
Last Wednesday, the Federal Court agreed Westpac should pay a fine of $1.3 billion, the largest civil penalty in Australian corporate history, after negotiations with financial crimes watchdog AUSTRAC over 23 million breaches of anti-money laundering and counter-terrorism financing laws.
Westpac had initially put aside $900 million for the penalty but agreed to pay a higher price due to the serious and systemic nature of the breaches that failed to properly monitor and report suspicious payments, some linked to child abuse in South-East Asian countries.
The second-largest bank said the asset write-downs were partly caused by COVID-19.
It comes as the prudential regulator threatens to hit insurers with a capital charge unless they stop selling unsustainable disability insurance products, as overly generous policies haemorrhage cash.
Morningstar banking analyst Nathan Zaia said the write-downs were further evidence that banks should simplify operations. “The write-downs are cementing or reinforcing how much shareholder capital has been put to the wall with these investments outside of banking,” he said.
By Charlotte Grieve, The Sydney Morning Herald, 26 October 2020
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