Major ASX bank Westpac Banking Group (ASX: WBC) has announced a huge hit to its FY19 profit.
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”.
Here’s What Westpac Just Announced About A Huge Profit Hit
Westpac has announced another round of customer remediation charges in relation to advice service fees, which was one of the main topics in the Financial Royal Commission. Ever since it was brought up in the hearings, banks are refunding hundreds of millions of dollars to customers.
Despite a recent announcement of remediation charges, today’s figure is even bigger.
Westpac explained that authorised representatives are advisors who maintain direct relationships with their customers for financial planning services, whilst using Westpac advice licenses. These advisors received ongoing advice service fees from their customers of approximately $966 million between 2008 and 2018.
Based on the current information, Westpac said that FY19 first half profit will be hit by $357 million, or $510 million pre-tax. This figure is made of $297 million of potential repayments, interest costs of $138 million and $75 million of remediation program costs.
The above figures relate to around 31% of ongoing advice service fees collected over the period, compared to an estimated 28% for salaried planners.
The work to determine where payments should be provided is still ongoing and the final cost of remediation won’t be known until all information is available and payments are made. The big four ASX bank also said that the remediation approach may change after industry and regulator discussions, which could later the estimates used in determining the above provisions.
Westpac CEO Mr Brian Hartzer said: “While it is disappointing that we have needed to make these provisions, I said at the end of last year that our priority was to deal with any outstanding issues and process payments as quickly as possible.”
Westpac summarised that the total impact on cash earnings in the first half of FY19 for customer remediation will be $617 million, or $896 million before tax.
To me, this shows why it’s better to do things right the first time. Not only is this a hugely expensive exercise for Westpac financially, but it has tarnished the bank’s reputation as well. I wouldn’t want to think about buying its shares until all of the remediation process and potential class actions are over.
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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.