Westpac slashes earnings by $1.4 billion due to AUSTRAC and customer remediation

Westpac slashes earnings by $1.4 billion due to AUSTRAC and customer remediation

Australia's second-largest bank Westpac (ASX: WBC) is counting the cost of a money laundering compliance scandal investigated by AUSTRAC, while the aftershock of the Royal Commission continues with hundreds of millions of dollars set aside for customer refunds.

The company announced this morning its cash earnings for the first half of 1H20 would be hit to the tune of $1.03 billion in AUSTRAC-related matters, including $900 million for a potential penalty and $130 million for a response plan.

Other costs take the total earnings impact to $1.4 billion, including around $260 million in additional provisions for customer refunds and payments, as well as associated costs and litigation.

The bank has also flagged $70 million in other asset write-downs, noting the group has had to reassess certain asset values given Covid-19 has significantly impacted asset values globally.

"This includes some capitalised software costs and some physical assets," Westpac said.

In addition, the company expects a $70 million earnings hit due to the end of the relationship between Westpac Life Insurance Services Ltd (WLIS) and BT Super.

"Following this change, Westpac has written-off associated deferred acquisition costs and will incur some transition costs."

These reductions add to Westpac's indication on 19 February that major bushfires and storms would add around $140 million (net of reinsurance) pre-tax to insurance claims in 1H20.

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