(Bloomberg) -- Westpac Banking Corp.'s full-year profit plunged after the lender was hit with a record fine for breaching anti-money laundering laws, and the coronavirus-induced recession swelled bad-debt charges.
Cash earnings fell 62% to A$2.61 billion ($1.8 billion) in the 12 months ended Sept. 30, the Sydney-based bank said in a statement Monday. The results include a previously disclosed A$1.2 billion charge for the laundering fine and the mounting cost of compensating wrongly treated customers. Bad-debt provisions increased A$3.2 billion as the recession smashes consumers and businesses.
“2020 has been a particularly challenging year and our financial result is disappointing,” Chief Executive Officer Peter King said in the statement. “Our earnings have been significantly impacted by higher impairment charges, increased notable items and the sharp decline in economic activity.”
The result adds to an already ugly earnings season for Australia's banks, which are bearing the brunt of the nation's first recession in almost 30 years, and mounting costs to clean up years of misconduct, such as selling junk insurance and providing poor financial advice. Australia & New Zealand Banking Group Ltd. last week posted a 42% decline in full-year profit and slashed its dividend.
The bank said it had “made progress” in reviewing units that lacked scale or returns -- such as insurance and wealth management -- that were placed into a specialist division earlier this year with a view to sell them. It's agreed to sell it's vendor finance arm and is shrinking its international operations as King tries to simplify the bank and restore its reputation after the money-laundering scandal led to the departure of predecessor Brian Hartzer.
“We are moving back to core banking with a sharper focus on Australia and New Zealand,” King said. “The simplification of our business will support improved returns and help pave the way for a reset of our cost base.”
Westpac shares fell 0.6% at the close of trading in Sydney, extending this year's decline to 27%.
“We had called out fiscal 2020 as the ‘bad news year',” Citigroup Inc. analysts led by Brendan Sproules wrote in a note to clients. “While core earnings were soft, the business enters fiscal 2021 on a much stronger footing and with a number of legacy issues having been resolved, in order to regain lost momentum.”
King, who delayed his retirement to steady the ship when Hartzer left, on Friday agreed to stay on beyond his initial two-year term and commit to the multi-year effort to turn the company around.
Westpac declared a A$0.31 per share final dividend, having previously scrapped its first-half payout to preserve capital. The nation's three other big banks have also reduced dividends, a blow for Australia's legion of mom and pop shareholders.
©2020 Bloomberg L.P.
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