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Westpac share price falls as AUSTRAC ‘Response Plan’ is revealed

The Westpac share price has continued to fall after the bank announced a high-level ‘Response Plan’ to the issues raised by AUSTRAC last week.

Westpac share price continues to dive Source: Bloomberg

One wonders when the stock will find stability.

Since the end of September, the Westpac (ASX: WBC) share price is down more than 18%.

A confluence of factors have pushed the stock down in that period, including: under pressure margins, the prospect of increased capital requirements and Westpac’s own pursuit of a cap-raise.

The AUSTRAC debacle and the potential costs that it may incur as a result – both reputationally and monetarily – are just the icing on the cake at this point.

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AUSTRAC and the Westpac share price

AUSTRAC last week alleged that Westpac breached Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act a staggering 23 million times.

A veritable media storm followed – with Westpac promising to release a more in-depth response once the bank had time to adequately consider AUSTRAC’s claims.

A slightly more in-depth response came today, as well as an unreserved apology from Westpac’s board.

The bank's Chairman, Lindsay Maxsted, said 'as a Board, and as individuals, we are devastated by the issues raised by AUSTRAC in its recent statements of claim.'

With the Chairman also pointing out that:

'We [the bank] have already made significant improvements, including reviewing and taking action on all of the individual customers mentioned by AUSTRAC and establishing a multi-layered review.'

Such comments couldn’t save the stock from bearish investors: as the Westpac share price collapsed a further 1.57% – to $24.38, in the first 30-minutes of trade.

Westpac’s ‘Response Plan’ in focus

Westpac highlighted a three-pronged approach to addressing the issues highlighted by AUSTRAC last week. Centrally, as part of this ‘Response Plan’, the bank will focus on making a number of immediate fixes, lifting the bank’s standards and ‘protecting people’.

Looking at some of the bank's immediate fixes, Westpac noted that it would: close LitePay, increase resources for financial crime, 'implement updated child exploitation filters into screening for the SWIFT payment channel', close the Cash Management Platform where many of these issues originated and maybe most importantly, 'remediate and analyse all unreported IFTIs to AUSTRAC.’

In regard to lifting their standards and protecting people, some of the key things Westpac is now focusing on include: establishing a financial crime sub-committee, hiring an external expert to review Westpac's program as it relates to accountability, and develop 'priority screening' for transactions that may 'suggest' Child exploitation is occurring. Other actions, such as providing funding for the International Justice Mission and SaferKidsPH, was also highlighted.

Speaking of the costs associated with this ‘Response Plan’, the bank noted that:

'We estimate these commitments will increases expenses by up to $80 million (pre tax) in FY20.'

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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