The Westpac Banking Corp (ASX: WBC) share price will be under scrutiny today, the major ASX bank has provided another update about customer remediation.

Westpac Banking Corporation, more commonly known as Westpac, is one of Australia’s ‘Big Four’ banks and a financial-services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business. Its name is a portmanteau of “Western” and “Pacific”.

Westpac’s Royal Commission Update

Westpac’s cash earnings for the first half of FY19 will be reduced by approximately $260 million due to additional customer remediation arising because of the issues raised in the Royal Commission.

Of the $260 million, around 90% relates to previous financial years. Half of it was for financial advice, the rest is for business and consumer banking. The amount includes interest on fees.

However, the bank said that the provisions exclude any allowance for refunds to customers of authorised representatives for ongoing advice service fees which are still being determined.

Westpac CEO Mr Brian Hartzer said: “A key priority is to deal with outstanding remediation issues and refund customers as quickly as possible. 

As part of our ‘get it right put it right’ initiative we are determined to fix these issues and stop these errors occurring again. We will continue to review our products and services to ensure they deliver the right outcomes for customers, and if necessary, make further provisions.”

The estimated proportion of fees that will be refunded has been increased to 28% as a result of these provisions.

As part of part of the ASX release Westpac outlined that total fees received by authorised representatives from their customers in the decade from 2008 to 2018 was around $966 million. Within that, fees from customers of authorised representatives under BTFG licences were approximately $437 million.

What does this mean for Westpac?

Another hit to its profit is not a good revelation for Westpac shareholders. It would have been better if Westpac and the other big banks had never done this because of the reputation damage they have suffered, which could be a much larger hit to profit over the long term.

Westpac also seemed to be signalling that there could be more costs to come, so investors should keep that in mind when considering an investment, as it could be one of the contributors to the possibility of a dividend cut in the future.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).