Investors shrugged off two bits of poor news for the country’s second biggest bank on Friday.
The bank revealed a possible $200 million fraud in one announcement, and ASIC revealed Westpac had agreed to make $87 million in reimbursements to customers over dodgy advice.
And yet the shares fell by just one cent to $25.64 as investors ignored both reports. The fraud statement came around midday so there was plenty of time for investors to get worried about it, but they didn’t.
In that statement Westpac said it had started proceedings in the Federal Court against Forum Finance Pty Ltd (Forum Finance), “following the discovery of a significant potential fraud.”
Media reports say Forum Finance is controlled by the owner of Sydney Olympic football club, Basile Papadimitriou, also known as Bill Papas. Mr Papadimitriou is the respondent in the lawsuit.
“The potential fraud relates to a portfolio of equipment leases with Westpac customers arranged by Forum Finance, which were referred to Westpac’s Institutional Bank.
“While investigations are ongoing and the NSW Police, ASIC and APRA have been notified, at this stage it appears no Westpac customer has suffered a financial loss,” the bank said.
Westpac said it “has a potential exposure of around $200 million after tax, with the extent of any loss dependent on the outcome of its investigations and recovery actions underway.
“The bank has obtained certain asset freezing and search orders to preserve available assets and relevant information.”
Westpac said it was continuing to investigate how this occurred, including undertaking an external review.
Westpac CEO Peter King said, “Westpac takes fraud very seriously and will take all necessary actions to protect the interests of the bank and its customers.
“This is a complex issue, and we are working at pace to address it, including engaging with the police and regulators. At this preliminary stage, the potential fraud is sophisticated and appears to have been perpetrated externally.
“Our new Chief Executive of the Institutional Bank, Anthony Miller, is working with our customers to ensure no disruption to their operations.”
In an earlier statement on Friday ASIC said Westpac will pay around $87 million in compensation to about 32,000 customers whose financial advisers failed to notify them of market-sensitive information about their shareholdings over a fourteen-year period.
The regulator found the bank’s advisers had withheld an estimated 328,000 pieces of important information on corporate actions by ASX-listed companies such as share buybacks, share purchase plans and takeover offers.
ASIC said Westpac’s failure to properly inform customers caused them to miss out on potentially lucrative opportunities.
Westpac said it aims to compensate most of the affected customers by the end of 2021. Customers will also be informed of missed corporate action notifications where Westpac has determined that no compensation is payable.