westpac bank royal commission AUSTRAC
(Image: AAP/Kelly Barnes)

After five days of ungainly wriggling, on Tuesday morning it became clear that Westpac would be getting a clearout at the top level. CEO Brian Hartzer has quit, chair Lindsay Maxsted will be bringing forward his retirement, and long-time director Ewen Crouch will not be seeking reelection.

All of this is directly linked to recent money laundering and child abuse financing scandals uncovered by AUSTRAC .

In the wake of these changes, Westpac is handing the interim CEO role to its chief financial officer, Phil King, who was otherwise due to retire shortly. A new chair will be found with Maxsted leaving in the first half of 2020 and not at the annual meeting in a year’s time. The role will be filled from outside the board.

A front page report in The Australian today claimed that Hartzer told a meeting of senior executives on Monday that “the AUSTRAC scandal did not need to be overcooked”. If true, that’s a remark that confirms Hartzer was still in denial and didn’t see the magnitude of the problems confronting the bank.

The changes came after intense pressure on the board at meetings yesterday involving major investors and proxy advisers ahead of the annual meeting on December 12. It became clear that unless there were departures and some accountability for the AUSTRAC scandal, the AGM could become a slugfest with major shareholders turning on the board and bank in full public gaze.

Two days ago, banking regulator APRA was revealed to have inquired into Westpac’s handling of the breaches. A day later ASIC, the key company regulator, went out of its way to confirm publicly that it was probing Westpac and possible breaches of laws.

ASIC doesn’t usually confirm these inquiries until they are well underway, or until they first hit the courts. It must have wanted to make it clear it was on Westpac’s case. (It would also be handy to know just when AUSTRAC told APRA and ASIC of its problems with Westpac and whether that was a heads up to start to investigate.)

The Westpac departures means that following the banking royal commission’s months of excruciating hearings and damning interim and final reports, and the activities of AUSTRAC, ANZ is the only major bank to retain its top two people — chair David Gonski and CEO Shayne Elliott.

Commonwealth Bank chair Catherine Livingstone is still in the role because she joined the CBA board late into its brawl with AUSTRAC over money laundering breaches that cost Ian Narev the role as CEO. NAB lost chair Ken Henry and CEO Andrew Thorburn earlier this year after being pinged by the Hayne commission’s final report. And among the non-banks, the AMP has lost a chair and CEO, board members and a number of executives.

What is ironic about Westpac is that it missed most of the fallout from the banking royal commission — its problems were mostly in the activities at its then partially-owned fund manager, BT, and nowhere near the seriousness of the accusations levelled at the AMP, CBA and NAB. As a result bank analysts and some in the media had proclaimed it — and later ANZ — the “winners” of the royal commission because of the absence of any really damaging stories.

Little did they know how little they did know.

AUSTRAC completely blindsided Westpac, its board and management and investors large and small. But it shouldn’t have. Westpac had already made public the fact that it had self-reported breaches of money laundering laws, a disclosure that was not highlighted in the first $2 billion of new capital raised earlier this month.

Lawyers and some fund managers are already looking at disclosure levels. Westpac has the last $500 of that raising out with retail shareholders at the moment. The offer closes on Monday (at this stage) and will be a big test of the way the normally loyal and imputed dividend-mad retiree and small investors groups continue to support the country’s oldest and second largest bank.