On Tuesday, Brian Hartzer and Lindsay Maxsted, Westpac’s CEO and chairman respectively, resigned in the aftermath of a series of allegations against the bank by the anti-money laundering (AML) agency Austrac.
The furore brings down the chief executive, who had seemed least affected by Australia’s Royal Commission into banking behaviour; indeed, had seemed strengthened by it.
He joins a growing heap of former executives – Ian Narev at the Commonwealth Bank of Australia (CBA), Andrew Thorburn and Ken Henry at National Australia Bank (NAB), Craig Meller and Catherine Brenner at AMP – brought low by bad practice in their institutions.
They had to go.
Austrac (the Australian Transaction Reports and Analysis Centre) announced on Wednesday that Westpac had breached AML laws 23 million times between 2013 and 2019, involving A$11 billion of transfers.
'Potential child exploitation risks'
But the real opprobrium came from the disclosure of 12 customers who had made large numbers of low-value payments that fit the pattern of purchasing child exploitation material. The 12, who made more than 3,000 payments between them, included one who had previously been convicted for child exploitation offences.
Austrac’s announcement says Westpac failed to “carry out appropriate customer due diligence on transactions to the Philippines and southeast Asia that have known financial indicators relating to potential child exploitation risks”.
Prime minister Scott Morrison was among those to voice his alarm and distaste, and from then on the only real question was whether Hartzer would survive long enough to explain himself at the December 12 AGM.
However, in an 8am disclosure to the Australian Securities Exchange (ASX), it was confirmed that Hartzer would be gone on December 2 and Maxsted will bring forward his retirement to the first half of 2020. The Australian Financial Review reports that the decision was made after meetings with institutional investors, including superannuation funds in Melbourne.
It is, of course, inconceivable that Hartzer could have known personally that his bank was enabling child exploitation, but this is the modern world of the bank CEO, particularly in Australia: when something noxious emerges in your life insurance subsidiary (CBA) or your financial planning arm (AMP), you take the fall.
Hartzer said as much in an email to staff. “As CEO, I accept that I am ultimately accountable for everything that happens at the bank.”
It really had seemed that Westpac was sailing a different course to the rest of the banks. It came through in by far the best shape of the big four in the Royal Commission – Maxsted never even had to give evidence.
And for a while it resisted the call to divest its wealth management division as the others had set about doing, though Westpac reversed course on that in March. Now, instead, it seems Shayne Elliott at ANZ will be remembered as the last man standing, having adopted an attitude of suitable contrition from the outset.
In truth, Westpac only looked good in comparison with the others, a low bar for behaviour. In October, it said the total amount of compensation it would give out in matters related to the Royal Commission, or had set aside in expectation of doing so, had hit A$1.9 billion since 2017; the industry-wide figure is expected to hit A$10 billion.
The executive departures look eerily similar to those at NAB, when Thorburn and Henry were accused by Kenneth Hayne, who chaired the Royal Commission, of not taking the bank’s errors sufficiently seriously.
There was the pledge to fix things, the address to staff, the initial desire to stay put, swiftly overwhelmed by a tide of popular, government and investor opinion that cost the bank both chief executive and chairman.
Perhaps the worst thing is that Austrac says it specifically warned the bank in December 2016 that its reporting systems were vulnerable to suspicious payments around child exploitation.
Westpac says this information never reached the board, and Hartzer says the first he knew of it came on November 15, five days before Austrac published its claim. This is exactly the sort of paucity of process that banks were supposed to have eradicated in the wake of the Royal Commission.
Next question: who replaces him? Do they do what CBA did and replace him with an internal figure – retail head Matt Comyn in CBA’s case – or take the NAB approach and go for an external figure: Ross McEwan, from Royal Bank of Scotland?
The interim leader will be CFO Peter King, who had announced his retirement in September, but may now put himself forward for the top job. Lyn Cobley, who heads the institutional bank at Westpac, would have been a likely candidate, but the systemic failures revealed during the past week may count her out.
Whoever takes the top job, they have a familiar list of things for a new Australian bank CEO to prioritize: rebuilding trust, winning over investors, positioning for digital innovation and dealing with the fact that the good times for Australian banking are over for the medium term.
Stop us if this sounds familiar.