At time of writing, the share price of Westpac Banking Corp [ASX:WBC] is up 1.27%, trading at $24.77.
After hitting a 52-week high of $30.05 on 27 September, the Westpac share price was hammered over the last two months, shedding over 17% of its value:
Westpac CEO Brian Hartzer was axed today, something which can be traced back to a faulty bit of code in Westpac’s internal systems. We explain the underlying problem with the Big Four banks and take a look at ways to profit as a seismic shift in the Australian financial system gets underway.
WBC has been a dividend staple for decades — find out why more bank dividend cuts could be on the way.
Westpac share price up as the company announces board re-shuffle
With today’s announcement released prior to markets opened, there was a small relief rally for Westpac shares when trading finally got underway.
It was a torrid two months of trading prior to the reshuffle, which involves Westpac CEO Brian Hartzer stepping down and chairman Lindsay Maxsted moving forward his retirement to early 2020.
The pitchforks came out after it emerged that of the 23 million, yes 23 million breaches of anti-money laundering law, 3,000 transactions were tied to child exploitation in the Philippines.
James Eyers wrote in the AFR that:
‘At Westpac, all staff are required to do compulsory anti-money laundering training, teaching bankers about the principles of monitoring financial crime. But deploying technology to ensure those principles are put into practice appears to have tripped the bank up.’
This is an understatement.
Far from tripping the banking giant up, new anti-money laundering laws in 2006 lead to a series of events which resulted in 23 million critical errors.
Much of this can be traced to Westpac’s inability to keep up with technology.
Their product LitePay, was an attempt to keep up with the times and was launched in 2016.
It was however missing a crucial piece of software which would have kept it aligned with Westpac’s AUSTRAC obligations, Eyers writes.
Why we are on the verge of a post-Big Four world…
All of this comes down to the issue of trust.
The Big 4 banks only exist because their economies of scale generate trust via centralised information about transactions.
You can see how the economies of scale work in the most recent Commonwealth Bank of Australia [ASX:CBA] earnings.
One of our editors, Matt Hibbard recently did a great piece on why CBA is pulling away from the Big Four pack.
Despite this, the CBA share price has failed to move past $82 in any significant way since August, something which we claimed may never happen again.
As governments look to roll out digital currencies in the next year or two, the pressure will only mount on the Big Four.
Their compliance failures have cost them dearly and they often talk about ‘re-building trust’ and ‘community standards’.
The thing is though, is that trust is a binary.
You either trust an institution or you don’t.
And it is clear a seismic shift in who/what Australians trust with their money is underway…they just don’t trust the Big Four anymore.
To conclude, if you are looking to invest in the post-Big Four world I’d recommend you start looking at neo-banks, neo-lenders, other exciting types of fintechs and of course, crypto.
These are all topics we regularly cover in our daily publication.
For Money Morning