The Humm Group Ltd (ASX: HUM) share price is down over 3% after announcing that it could be caught up in the potential Forum Finance alleged fraud.
Humm’s potential exposure to Forum Finance
Humm said that between 2016 and 2018 its decommissioned brand (Flexigroup Managed Services) provided equipment finance. Records indicate that Flexigroup had business linked to Forum Finance during that time.
Management said that following the shutdown of Flexigroup in 2018 the majority of its assets were sold to a third party and transferred off Humm’s balance sheet in 2018.
Humm said that at this stage it has “not confirmed if the assets are fraudulent” and only that Humm were associated with Forum Finance. Investigations are continuing and further information from third parties is needed.
The company said that on initial review the estimated maximum exposure to Forum Finance, including receivables on-sold, is around $12 million after tax.
How Westpac is involved
Last week Westpac Banking Corp (ASX: WBC) announced that it has commenced proceedings in the Federal Court of Australia against Forum Finance, following the “discovery of a significant potential fraud”.
Westpac said that the potential fraud relates to a portfolio of equipment leases with Westpac customers arranged by Forum Finance, which were referred to Westpac’s institutional bank.
The company said that at this stage it appears that no Westpac customers have suffered a financial loss. The investigations are ongoing and the NSW Police, ASIC and APRA have been notified. An external review will also occur.
Westpac has a potential exposure of around $200 million after tax, any losses will depend on the outcome of investigations and recovery actions that are underway. The bank has obtained asset freezing to preserve available assets.
Westpac management comments on Forum Finance potential fraud
Westpac CEO Peter King said: “Westpac takes fraud very seriously and will take all necessary actions to protect the interests of the bank and its customers. This is a complex issue, and we are working at pace to address it, including engaging with the police and regulators.
“At this preliminary stage, the potential fraud is sophisticated and appears to have been perpetrated externally.”
Summary thoughts on Humm, the share price and Westpac’s involvement
Investors are reacting to the news with the Humm share price down by over 3%. It’s hard to know how much Humm will end up being affected by this as investigations are ongoing.
The Westpac share price is down by 1% right now, but so are the other major banks. I don’t expect this will materially affect Westpac’s business.
If I were a shareholder of either Humm or Westpac, I would be somewhat reassured at how seriously Westpac is handling the situation and Humm may be able to work with Westpac in gathering information.
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