Westpac and ANZ have recently flagged major hits to annual cash profits, in large part due to the banking royal commission which has exposed widespread wrongdoing in Australia’s financial sector.
Westpac Banking Corp last month announced their annual cash earnings would this year fall by an estimated $235 million. This came on the eve of the release of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s interim report. The regulator has brought cases regarding alleged interest rate rigging and responsible lending practices, resulting in significant costs and penalties. Westpac has increased provisions to compensate its customers charged for poor or even non-existent financial advice. This ‘fees for no service’ scandal isn’t unique to Westpac,
Westpac will release its results on November 5. Of the $235 million, an estimated two thirds will be recorded as negative revenue, the rest as costs. Westpac said that reviews into advice fees charged by aligned financial planners will continue in the new year, and may lead to further costs.
ANZ joins Westpac in plunging profits
Today, Australia and New Zealand Banking Group announced that they too would take a hit to this year’s overall profits. Of an estimated $824 million annually, $711 million was recorded in the six months to September 30. Over half, $374 million, of the second half hit related to customer compensation. The legal costs of the royal commission make up $27 million. Over a quarter, $206 million, was due to the rapid amortization of software assets, in particular related to overseas business. ANZ will release its results on Oct. 31, a few days prior to Westpac.
ANZ, Westpac and the rest of Australia’s big four banks will all see profits fall this year. The Australian Securities and Investments Commission (ASIC) estimates that compensation for those affected by the ‘fees for no service’ scandal could cost banks upwards of $1 billion.
Words by Isabelle Laker