Westpac (ASX:WBC) Share Price Falls On APRA Investigation

The Westpac (ASX: WBC) share price is down after APRA announced it’s launching an investigation into the major ASX bank.

Westpac is one of Australia’s ‘Big Four’ banks and a financial-services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business.

APRA Launches Investigation Into Westpac

The Westpac pain from the AUSTRAC reporting has continued today with the Australian Prudential Regulation Authority (APRA) announcing it is formally commencing an investigation into possible breaches of the law.

APRA will be looking at whether Westpac, its directors and/or its senior managers breached APRA’s prudential standards or the Banking Act, including the Banking Executive Accountability Regime (BEAR).

APRA Increases Requirements On Westpac

APRA said it will impose an immediate increase in Westpac’s capital requirements of $500 million, to reflect the “heightened operational risk profile of the bank”.

This brings the operational risk capital add-ons that Westpac is required to hold to $1 billion after an increase in July 2019. It’s also going to review Westpac’s risk governance including management, accountability, remuneration and culture.

APRA Deputy Chair Mr John Lonsdale said: “While Westpac is financially sound, there are potentially substantial gaps in risk governance that need to be closed.

GIven the nature of the matters raised by AUSTRAC, the number of alleged breaches and the period of time over which they occurred, this will necessarily be an extensive and potentially lengthy investigation. 

Westpac Response

The big ASX bank has responded to APRA’s statement.

It said that in addition to APRA’s actions, Westpac has appointed Promontory to undertake a review, which is currently underway.

The extra $500 million operational risk capital requirement will apply from 31 December 2019 and is expected to reduce Westpac’s Level 2 CET1 capital ratio by around 0.16% based on the balance sheet at 30 September 2019.

Westpac Chairman Lindsay Maxsted said: “Westpac accepts the gravity of the issues presented by AUSTRAC. As previously stated, these shortcomings are unacceptable and we are determined to urgently fix these issues and lift our standards. We will provide our full support to APRA through its investigation and review.”

The Westpac share price fell almost 1% in morning trading in response to this.