Westpac’s FY19 net profit has taken a 16% hit to $6.78 billion after the group was impacted by customer remediation costs, and a reduction in wealth and insurance income from exiting its financial planning business.
Also contributing to their net profit decrease were higher insurance claims and the impact of regulatory changes on revenue, according to the bank’s full year results report. Cash earnings were also down 15% to $6.85 billion.
Net wealth management and insurance income decreased $1.03 billion (50%) compared to FY18 due to additional provisions for estimated customer refunds, payments, associated costs, and litigation of $531 million, higher general insurance claims from severe weather events, and cessation of grandfathered advice commissions. Lower wealth management income was due to changes in platform pricing structures and exit of the Hastings business in FY18.
Westpac Group chief executive, Brian Hartzer, said: “2019 has been a disappointing year. Financial results are down significantly in a challenging, low-growth, low interest rate environment.
“Our result was impacted by customer remediation costs and the reset of our wealth business. Excluding these notable items, cash earnings were down 4% on FY18, which was mainly due to a reduction in wealth and insurance income from the exit of our financial planning business, higher insurance claims, and the impact of regulatory changes on revenue.
Hartzer said the bank had established a remediation hub to speed up the refunding process. Since 2017 Westpac had paid out around $350 million refunds to more than 500,000 customers.
He noted that re-setting the company for the future was a priority, and in particular strengthening its balance sheet in a low interest rate environment and dealing with potential uncertainties.
“We expect $500 million of productivity savings in FY20 as well as another $200 million from the Wealth reset, including the exit of our financial planning business. This will be partly offset by incremental spend on improving risk management over the next two years,” he said.
Westpac's annual general meeting notice said the Hartzer recommended he forego his short-term incentives (STVR) and the board determined a zero STVR for 2019 was appropriate to reflect accoutnability for poor non-financial risk and financial outcomes, as well as some poor customer outcomes, including those highlighted at the Royal Commission. Hartzer would also have no increase in his base pay and has not had an increase since he started in the role in 2015.