The cost of a deposit guarantee: Part 5.0
Quote:
Originally Posted by
Southern Lad
The Westpac Group Tax Transparency
Report for the year ended 30 September 2019 details A$388m of Major Bank Levy paid for FY19 compared with A$377m for FY18. The footnote states these amounts were the cash actually paid for the year, which may be different from the Bank Levy liability for each of FY19 and FY18 however the amounts are consistent y-o-y.
See
https://www.westpac.com.au/content/d...ncy_Report.pdf
Quote:
Originally Posted by
Snoopy
Now I can use the same method to calculate what the bank levy would have been if it had been in place over the whole of FY2017, FY2016 and FY2015. And I need to do that so that I can decouple operational performance of the bank from any extra taxes imposed.
Bank Levy Estimate Calculation for FY2017
|
EOFY2016 |
EOFY2017 |
FY2017 Averaged |
Reference |
Corporate Bonds |
$106,626m |
$98,823m |
$102,725m |
(Senior Debt p165 AR2017) |
Commercial Paper |
$47,760m |
$46,511m |
$47,136m |
(Repurchase Agreements p164, Covered Bonds, Securitization and Structured Entities p165 AR2017) |
Certificates of Deposit |
$46,463m |
$46,921m |
$46,692m |
(Certificates of Deposit p163 AR2017} |
Customer Deposits (Australia) |
|
|
$415,591m |
(Non-interest bearing, interest bearing at call, interest bearing term p164 AR2017} |
Tier 2 Capital Instruments |
$8,947m |
$9,238m |
$9,093m |
(Total Tier 2 Loan Capital p166 AR2017) |
Total |
|
|
$621,237m |
Bank Levy Estimate Calculation for FY2017
0.0006 x $621,237m = $373m
From AR2018 p10 "The levy cost us $378m this year, $283m higher than 2017." By simple subtraction this means that the bank levy paid in FY2017 was $95m (confirmed in AR2017 p17). But the levy was only payable for three months of that year. So we have to make an incremental bank levy adjustment of: $373m - $95m = $278m, to bring FY2017 into line with subsequent years in which the bank levy is payable over the whole year.
Note
There was no bank levy payable over FY2016 and earlier. However, if we imagine there was, and adjust for it accordingly in a retrospective way, this will provide a better 'measuring yardstick' to compare the business performance with going forwards.
Bank Levy Estimate Calculation for FY2016
|
EOFY2015 |
EOFY2016 |
FY2016 Averaged |
Reference |
Corporate Bonds |
$87,645m |
$106,626m |
$97,156m |
(Senior Debt p160 AR2016) |
Commercial Paper |
$55,593m |
$47,760m |
$51,676m |
(Repurchase Agreements p159, Covered Bonds, Securitization and Structured Entities p160 AR2016) |
Certificates of Deposit |
$48,184m |
$46,463m |
$46,692m |
(Certificates of Deposit p158 AR2016} |
Customer Deposits (Australia) |
|
|
$380,682m |
(Non-interest bearing, interest bearing at call, interest bearing term p159 AR2016} |
Tier 2 Capital Instruments |
$7,912m |
$8,947m |
$8,430m |
(Total Tier 2 Loan Capital p161 AR2016) |
Total |
|
|
$585,248m |
Bank Levy Estimate Calculation for FY2016
0.0006 x $585,248m = $351m
Bank Levy Estimate Calculation for FY2015
|
EOFY2014 |
EOFY2015 |
FY2015 Averaged |
Reference |
Corporate Bonds |
$82,377m |
$87,645m |
$85,011m |
(Senior Debt p158 AR2015) |
Commercial Paper |
$55,303m |
$55,933m |
$55,628m |
(Repurchase Agreements p157, Covered Bonds, Securitization and Structured Entities p158 AR2015) |
Certificates of Deposit |
$51,577m |
$48,184m |
$49,881m |
(Certificates of Deposit p156 AR2015} |
Customer Deposits (Australia) |
|
|
$354,199m |
(Non-interest bearing, interest bearing at call, interest bearing term p157 AR2015} |
Tier 2 Capital Instruments |
$6,376m |
$7,912m |
$7,104m |
(Total Tier 2 Loan Capital p159 AR2015) |
Total |
|
|
$551,863m |
Bank Levy Estimate Calculation for FY2015
0.0006 x $551,863m = $331m
Note that the bank levy is a tax deductible expense for Westpac.
SNOOPY
Buffett Test 1/ FY2019: Top Three Position in Chosen Operating Markets
Quote:
Originally Posted by
Snoopy
I aim to assess whether the 'Westpac Group' is a suitable candidate to which to apply the (Mary) 'Buffett' growth model .
WBC, incorporated in Australia, but also listed on the NZX describes their operation of their business in the FY2015 Annual Report as follows:
"to be one of the world's great service companies helping our customers, communities and people to prosper and grow"
It would be an oversimlification to think of Westpac just as a traditional bank. They have a strong wealth and insurance business through associated company BT Group, in which they sold down their controlling stake in FY2015. The business is based around strong Australian and New Zealand geographic foundations. The New Zealand business is a self contained unit.
The business objectives are to support:
1/ Australian and New Zealand consumers.
2/ Australian and New Zealand businesses, both large and small
2/ Regional Trade and Capital Flows for business customers via the WIB ("Westpac Institutional Banking Division".)
3/ A 'digital ready infrastructure' for the future.
Major Competitors in this sector are listed in order by $A revenue (interest income).
1/ Commonwealth Bank of Australia: $33,817m
2/ Westpac Bank: $31,822m
3/ ANZ Bank: $29.951m
4/ National Australia Bank $27,629m
Conclusion: As number two in the market, WBC passes the first Buffett Point test.
An overseeing body shake up of the Australian big four banks has seen Westpac put up as 'Available for Sale' their last 10% link with their listed wealth management associate - Pendal Group - and realign some residual wealth management in house functions under the in house broad based 'Persomal' and 'Business' customer units.
'Personal' incorporates Bank Accounts, Home Loans, Credit Cards, Personal Loans, and International & Travel. They offer consumers share trading, Insurance (including mortgage insurance) and superannuation services (investing in other peoples managed funds and listed shares.)
'Business' for small to medium enterprises adds invoicing, merchant services, business loans, business insurances and forex services.
'A third business unit Westpac Institutional Bank' (WIB) looks after corporate and government banking requirements.
Westpac continues to claim they aspire :
"To be one of the world’s great service companies, helping our customers, communities and people to prosper and grow.”
Westpac use their 'Net Promoter Score' (NPS) to claim they are number 2 (of the big four banks) for consumers and number 1 for business. The Australian NPS scores are negative. (-7.3 for consumers and -4.5 for business: refer slide 38 in FY2019 Result Presentation). These NPS scores can vary between -100 and +100, withj a level above +30 considered to be 'good'. So even though Westpac does well in reference to other banks, these scores show most Westpac customers would not recommend Westpac's services to others. That doesn't tie in with the vision of being a 'great service company'. The corporate business fares much better with an NPS score of +51. Perhaps that shows where the real service strength of Westpac lies?
Major Competitors in the Australasian banking sector are listed in order by $A revenue for FY2019 (interest income + non-interest income).
1/ Commonwealth Bank of Australia: $34,588m +$4,994m + $1,073m + $150m = $40,805m
2/ Westpac Bank: $33,222m + $1,655m + $1,029m + $929m + $129m = $36,964m
3/ ANZ Bank: $31,077m + $4,058m + $126m + $262m = $35,523m
4/ National Australia Bank: $29,203m + $4,373m = $33,576m
Conclusion: As number two in the market by turnover, WBC passes the first Buffett Point test.
SNOOPY
Impaired Asset Trend (FY2019 Perspective)
WBC |
|
Annual Net Impaired Asset Expense (A) |
Total Impaired Loan and Credit Commitment Provision (B) |
(A)/(B) |
Total Loans (impairment (B) included) (C) |
(B)/(C) |
EBT (before impaired asset exposure) (D) |
(A)/(D) |
FY2008 |
$931m |
$2,174m |
43% |
$315,719m |
0.7% |
$6,150m |
15.1% |
FY2009 |
$3,238m |
$4,734m |
68% |
$468,193m |
1.0% |
$9,334m |
34.7% |
FY2010 |
$1,456m |
$5,061m |
26% |
$482,716m |
0.9% |
$9,494m |
15.3% |
FY2011 |
$993m |
$4,414m |
22% |
$501,023m |
0.9% |
$9,507m |
10.4% |
FY2012 |
$1,212m |
$4,241m |
29% |
$518,686m |
0.8% |
$10,026m |
12.0% |
FY2013 |
$847m |
$3,949m |
21% |
$540,113m |
0.7% |
$10,619m |
8.0% |
FY2014 |
$650m |
$3,481m |
19% |
$583,824m |
0.6% |
$11,390m |
5.7% |
FY2015 |
$753m |
$3,332m |
23% |
$626,648m |
0.5% |
$12,169m |
6.2% |
FY2016 |
$1,124m |
$3,602m |
31% |
$665,528m |
0.5% |
$11,768m |
9.6% |
FY2017 |
$853m |
$3,119m |
27% |
$688,038m |
0.5% |
$12,368m |
6.9% |
FY2018 |
$710m |
$3,053m |
23% |
$712,733m |
0.4% |
$12,441m |
5.7% |
FY2019 |
$794m |
$3,913m (*1) |
20% |
$718,683m |
0.5% |
$10.543m |
7.5% |
(*1) Includes a $980m increment from the adoption of accounting standard AASB9 (on Financial Instruments, including impairment). AASB9 includes a new 3 level impaired debt assessment classification as part of the newly adopted ECL (Expected Credit Loss) model.
SNOOPY
An unorchestrated 'litigation lot' of liabilities: Part 3
Quote:
Originally Posted by
Snoopy
'The bank that may have facilitated pedophiles'
doesn't sound like a great marketing campaign line.
AUSTRAC (The Australian Transaction Reports and Analysis Centre) is investigating and
"Any enforcement action against Westpac may include civil penalty proceedings and result in the payment of a significant financial penalty which Westpac is currently unable to reliable estimate." (AR2019 p255)
Quote:
Originally Posted by
Snoopy
Bankers know a lot about their customers and their spending habits. Some say they can identify if your bankcard and security code is stolen by flagging as few as two to three transactions. Banks also have anti-money laundering responsibilities and are required to look out for proceeds of crime. I guess some banks take their responsibilities more seriously than other banks. It appears only Westpac facilitate the funding of Paedophile rings on a large scale. Other banks put Children above profit.
The 24th November 2019 Westpac press release indicates that Westpac still expect to be fined, for not having the necessary checks on some accounts. However they have rolled out the following $54m dollars worth of 'good corporate citizen' measures:
-----
1/ Funding for the International Justice Mission (IJM): Westpac will match IJM's current level of funding, investing $18 million over three years to tackle Online Sexual Exploitation of Children (OSEC) in the Philippines. This will enable IJM to expand on-the-ground initiatives in Southeast Asia to help end child exploitation.
2/ Funding for SaferKids: Westpac will match the Australian Government's current level of funding for its SaferKids partnership with Save the Children, UNICEF and The Asia Foundation, investing $6 million over six years to raise awareness of Online Sexual Exploitation of Children (OSEC) and support programs to protect children in the Philippines.
3/ Prevention: Westpac will seek the guidance of industry experts, through the convening of an expert advisory roundtable, to develop a program of actions to support the prevention of online child exploitation. Westpac will provide funding of up to $10 million per year for three years to implement these recommendations
-----
In house,
1/ Westpac have closed their "Westpac Australasian Cash Management Product" and "LitePay international funds transfer system". These were two platforms where funds could be transferred with little accountability.
2/ Westpac intend to hire an additional 200 people to add to their financial crime resourcing team. This team has already been boosted by 325, to 750 people over the last three years.
3/ Westpac will invest $25 million to improve cross-border and cross-industry data sharing and analysis to better support regulators and authorities to fight financial crime
Those financial commitments add up to $79m, excluding Westpac's own incremental internal costs.
The 25th November 2019 Westpac press release contains more details on Westpac's costs for the full support of the anti-pedophile program:
"Westpac has made a number of commitments including to improve its financial crime program, support industry initiatives to enhance financial crime monitoring and provide additional support and resources to organisations that are working to eradicate child exploitation. We estimate these commitments will increase expenses by up to $80 million (pre tax) in FY20 when the majority will be incurred or provided for. These expenses will be included in cash earnings and treated as notable items."
The 'notable items' comment is made in relation to the whole thing being a 'non-operational matter." I would not include it as part of 'normalised earnings'.
I am not sure what kind of fine Westpac may expect as a result of their prior inactions, to be offset by their subsequent make good efforts at least in a judge's eye. I don't think they will get away with a wet bus ticket though. But given that Westpac was a conduit for crime rather than doing the crime themselves, I wonder if it will be somewhat in the order of $20m? That would see Westpac face a total cost of $80m + $20m = $100m for the whole matter. $100m sounds like a good 'headline punishment' to face. Anyone know how this figure compares with existing court precedents?
These 'good corporate citizen' measure responses will form part of the FY2020 'one off expense' picture.
SNOOPY