McFarlane moves to ‘draw line’ under recent past

Westpac chairman John McFarlane has moved to “draw a line” under one of the most challenging periods in the bank’s more than 200-year history, urging shareholders to back the overhaul being led by the new management team and flagging higher dividends over time. 

Addressing shareholders at the annual general meeting today, Mr McFarlane also expressed optimism about the economy’s recovery, saying while 2020 had been a year “like no other” there were positive signs. 

“While our environment remains somewhat uncertain in the near-term with the continuing economic impacts of COVID, I do feel there is cause to be optimistic about the future and assure you the board and I are fully committed to delivering a better future for your company,” the 45-year veteran of the financial services industry said at his first AGM as chair of Westpac. 

Chief executive Peter King added that the economic recovery as states eased restrictions and opened borders was encouraging and expected to continue through next year, helping offset the unwinding of government stimulus that had been critical to supporting households and businesses. Westpac’s economics team last week upgraded their GDP growth forecast for 2021 from 2.8 per cent to 4 per cent. 

“I’ve been particularly pleased to see many customers restart repayments,” Mr King said, referring to the sharp reduction in the number of customers on loan repayment deferral packages since March. “Nevertheless, some customers will find conditions difficult. The gradual unwinding of government support must be offset by increased activity if we are to minimise the impacts on customers.” 

Describing 2020 as a disappointing year for shareholders, Mr McFarlane apologised for the risk and compliance shortcomings that culminated in the $1.3 billion penalty from regulator AUSTRAC and assured the board would “closely oversee” the Enforceable Undertaking agreed with APRA last week. 

He added that while management had led several major changes in the past year and non-financial risk management had improved, there was more work to do and the bank must be “firmer in our approach and more urgent in our actions”. But he cautioned that implementing meaningful change “takes time and persistence, and I ask for your patience as we work through it”.

“I would however like to use this AGM to draw a line on the past and move to a better future,” he said, noting Mr King had already announced the sale of non-core businesses as part of the new strategy to return to core banking in Australia and New Zealand. 

“We also put in place plans to make the company more streamlined, more efficient, and more digitally capable, with lower costs and a lower cost-income ratio while maintaining strong capital levels. These plans should enable us to improve performance significantly and enable us to return to more appropriate dividend levels.

“While I know very well these roles aren’t for the faint-hearted, I am fully committed to the company, and to its recovery.”

Mr King also acknowledged impact of the AUSTRAC penalty on shareholders, but said reaching a settlement was an important step that allowed the bank to get “things back on track” and focus on its three priorities of fix, simplify and perform.

After unveiling the priorities at the bank’s full-year results, Mr King said better performance was about “building customer loyalty and growth through service, sharpening our focus on returns, and resetting our cost base”, but given the environment the priority was to “continue supporting customers impacted by COVID and to help them get back on their feet”. 

“Shareholder value is created by a strong customer franchise; strong relationships; and by being there for customers when they need us. Right now, that means supporting customers and the economy through this pandemic,” he said.