$6.2 billion wiped in 24 hours

 

A scathing indictment on the banks was promised when the royal commission's final report into the finance sector was handed down in February.

But the supposed D-Day turned out to be a non-event, with Commissioner Kenneth Hayne QC's findings labelled by one leading equities analyst as "more bark than bite".

The day after the report was handed down, banking stocks surged. By midday the following trading session, the big four banks - Commonwealth Bank, Westpac, ANZ and NAB - all soared between 4.7 and 6.6 per cent higher.

RELATED: Westpac facing penalties for to money laundering, counter-terrorism laws

RELATED: NAB to compensate customers who were sold dodgy insurance

RELATED: CommInsure customers to be refunded more than $12 million

NAB chief executive Andrew Thorburn and chairman Ken Henry were forced to fall on their swords by the end of that week after invoking particular scorn from the commissioner, but the general consensus was the sector escaped any major structural changes.

This week, however, appeared to deliver the promised reckoning.

The Commonwealth Bank-owned life insurer agreed to refund $12 million to CommInsure customers after pleading guilty to 87 criminal counts of illegally selling its product over the phone.

NAB settled the first post-royal commission class action and will pay $49.5 million to hundreds of thousands of customers who were sold junk credit card and personal loan insurance.

But the real doozy was reserved for Westpac.

Australia's oldest bank was accused by the financial intelligence agency of more than 23 million breaches of anti-money laundering and counter-terrorism financing laws, in transfers amounting to $11 billion.

The most staggering indictment related to AUSTRAC's application to investigate the major lender was less than $500,000 that a dozen Westpac customers allegedly paid to the Philippines and South East Asia.

The agency says these types of payments are consistent with transfers made to those who are involved with child exploitation.

"Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies, consistent with AUSTRAC guidance and their own risk assessments," the agency's chief executive Nicole Rose said.

 

Westpac lost $6.2 billion in value in just 24 hours. Graph: Iress
Westpac lost $6.2 billion in value in just 24 hours. Graph: Iress

 

The bank's shares have since plummeted as punters try and comprehend the scale of punishment to be inflicted if Westpac is found guilty.

A recent precedent was Commonwealth Bank's $700 million fine last year for similar offences but this was related to 53,000 breaches of anti-money laundering and terrorism-funding laws, not more than 23 million.

Over a 24 hour period, $6.2 billion was wiped off its share value. But the billions of dollars paid out in remediation costs from all the major banks continues to climb as the looming threat of further penalties and class actions persist.

FACILITATING 'HORRENDOUS TYPES' OF CRIME

The Attorney-General Christian Porter said the "enormous" number of alleged money laundering breaches by Westpac have the potential to facilitate "the most horrendous crimes".

"Anyone who breaches money laundering laws and therefore allows money to be laundered, has - just as a matter of fact and common sense - contributed to the facilitating of international and domestic crimes of a variety of types," he told 6PR on Thursday.

"The reason people launder money is to hide the profits of crime and criminality and to fund further crime and criminality, which is why we have such strong laws, such strong penalties and why the government takes such an incredibly robust approach to money laundering."

Investment bank Citi noted on Thursday in a report aimed at predicting the ensuing bloodbath at Westpac how similar scandals had resulted in mass changes to executive teams.

NAB's chief executive and chairman followed most of its management team out the door after a foreign exchange trading furore in 2004 cost the bank $360 million.

CBA chief executive Ian Narev stepped down amid significant management and board changes at the major lender after its AUSTRAC settlement related to anti-money laundering and terror-financing charges.

The microscope is now focused on Westpac chief executive Brian Hartzer who admitted on Wednesday that "the issue of personal accountability is absolutely on the table".

"I will be personally leading our response to all of these issues," he told reporters.

"With respect to the specific customer matters that are in the detailed statement of claim: the first time I saw them was this morning."

"I was … utterly horrified at what I read, and am absolutely determined to get to the bottom of why on earth this was allowed to persist."

On Friday, the bank's chairman Lindsay Maxsted said the board was "devastated" by the issues raised by AUSTRAC.

"The notion that any child has been hurt as a result of any failings by Westpac is deeply distressing and we are truly sorry," he said in a statement. "The board unreservedly apologises.

"We have already made significant improvements, including reviewing and taking action on all of the individual customers mentioned by AUSTRAC and establishing a multi-layered review

"We have also commenced discussions with relevant community groups about any further steps we can take to fight child exploitation."

 

Brian Hartzer says he accepts “the need for accountability”. Picture: Jane Dempster/The Australian
Brian Hartzer says he accepts “the need for accountability”. Picture: Jane Dempster/The Australian

 

'ASLEEP AT THE WHEEL'

The AUSTRAC allegations illustrate the sloppiness now synonymous with the sector which can have major criminal and financial repercussions, LF Economics founder Lindsay David said.

"It's unfortunately not surprising that something like this is going on in the Australian banking system," he told news.com.au.

Previous research conducted by LF Economics revealed misconduct committed by lenders in regards to the issuing of mortgages.

"If you compare the scrutiny a European or an American bank will apply to a potential customer when signing up for a bank account versus setting up a bank account here, Australian banks are probably some of the easiest to set up with," Mr David said.

"Nothing surprises me, this banking system has a lot of problems it needs to solve and, concerningly, it's going to impact shareholders and other stakeholders.

"This Westpac (scandal) is a big one, and it's pretty clear it was asleep at the wheel."

Mr David said the findings from the royal commission will serve as a launching pad for emboldened law firms keen to take on the might of the big four banks.

Slater and Gordon was at the helm for the NAB class action settled this week and the law firm has since turned its attention to running similar assaults for victims who were sold junk credit card and loan insurance by Westpac and ANZ.

"Customers who trusted the big banks were ripped off and continue to be out of pocket after being pressured to sign up to worthless insurance cover," the firm's practice group leader Andrew Paull said.

"The behaviour uncovered by the royal commission, whereby big multimillion-dollar financial institutions were taking advantage of vulnerable Australians for financial gain was reprehensible.

"We will continue to hold the big banks to account on behalf of the hundreds of thousands of Australians who have been ripped off. They deserve to get their money back."

Was this week from hell just the start for the banks? Comment below or get in touch | @James_P_Hall | james.hall1@news.com.au