Westpac Banking Corporation [ASX:WBC] announced today it has reached an agreement with AUSTRAC to resolve the civil proceedings commenced in November 2019.
AUSTRAC, a government financial intelligence agency set up to monitor financial transactions, brought forward allegations against WBC of committing more than 23 million cases of anti-money laundering breaches.
To which the bank admitted to in March this year.
Admissions which carried a theoretical penalty of as much as $483 trillion.
WBC announced today it would settle the charges and has agreed to pay a civil penalty of $1.3 billion — the largest fine in Australian corporate history.
At the time of writing, the WBC share price is down 1.71% to $16.11 per share.
Westpac underestimates penalty
If you’re not up to speed about what is going on with Westpac, here’s a quick summary:
- In November 2019, AUSTRAC accused WBC’s desire for ‘faster and cheaper’ international transfers led the company to break the law, left it unable or unwilling to identify payments consistent with child exploitation activity.
- Which WBC admitted to, saying it ‘did not sufficiently monitor’ the customers with ‘a view to identifying, mitigating and managing the child exploitation material risk’.
- The bank also said AUSTRAC should cop some of the blame, saying it failed to articulate its concerns over a long period of engagement.
- WBC today admitted to a further 76,000 similar offenses.
Pretty heavy stuff.
In its first-half yearly results, WBC provided for an estimated penalty of $900 million, and associated costs.
Meaning the penalty that WBC and AUSTRAC will recommend to the court will carry a further $404 million in provisions in WBC’s accounts.
Plus, AUSTRAC’s legal costs of $3.75 million.
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How will this impact WBC and more importantly, its shareholders?
WBC should be able to absorb the massive plenty just fine, since it cancelled its interim dividend in August.
But that could also mean a scrapping of the bank’s final dividend too.
How does this bode for the WBC share price?
In my opinion, the WBC share price isn’t likely to take too much of a beating from the fine alone.
But I could be wrong.
WBC’s share price action today comes as the broader ASX sinks, along with the other big banks — who are all down by similar margins.
The more serious flow-on effects from the fine could mean further cuts to its dividend for the foreseeable future.
Considering the state it’s in, WBC might have a tough time justifying the payout of profits.
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