Shares in Westpac Banking Corp (ASX: WBC) are inching higher from the open today amid the outcomes of its annual general meeting (AGM) held earlier today.
In their addresses to shareholders, both Westpac's CEO and Chairman acknowledged the series of systematic failures the bank has put stakeholders through over the previous years, resulting in a destruction of shareholder value.
For instance, since 2017, the Westpac share price has been on the gradual walk down having lost over 37% or $12.50 per share in value over that time.
As such, the bank touts 2022 as a key year of inflection, marking a turning point in its internal operations and management structure, in an attempt to reverse the long-term trend that's been in situ.
Here are the key takeouts from Westpac's AGM.
What did Westpac cover in its AGM?
The macroeconomic environment of 2021 saw Westpac raise its dividend to a full-year payment of 118 cents per share whilst committing to a $3.5 billion off-market buyback of its own stock.
However, as it was put today, these outcomes benefitted from "lower notable items and impairment charges which obscured an overall decline in core earnings following significant and necessary cost increases to fund operational and regulatory improvements".
Whilst mortgage growth saw a slight increase from these decisions, it was at the expense of the bank's net interest margin (NIM), something analysts have been caning the company for this year.
"Overall, the result was disappointing, leading to a drop in our market value for which I apologise unreservedly on behalf of the Board" said Westpac's chairman, John McFarlane.
As such, the bank has a plan to improve this performance, by instating a plan to reduce costs over the coming 3 years without jeopardising investment in infrastructure and revenue opportunities.
Most of the bearish commentary on Westpac is critical of the bank achieving this target, and many analysts think the company won't be able to get there.
However, the bank is confident it can, and gave a high-level overview of why it thinks it can. For instance, it noted that last year's total expenses were $13.3 billion – $10.9 billion when conveniently excluding 'notable items'.
Backing out more one-off items on the ledger, then its cost base came in at approximately $9 billion, McFarlane says.
This means it needs to reduce its cost base by 11% on a net basis to achieve the $8 billion target by 2024.
Westpac's chair also acknowledged the "many longstanding" challenges the bank has faced over the years, ranging from a lack of strategic focus to a thinning market share due to "bureaucratic management processes, alongside operational and technological complexity".
Not only that, the bank still has to resolve a plethora of longstanding legal, risk and regulatory issues, in addition to discovering new issues as it conducts internal investigations.
Some of these issues have only recently been brought on by the regulator as well, including a 30 November announcement by ASIC noting it is launching multiple actions against the bank in the Federal Court.
The regulator alleges Westpac engaged in widespread compliance failures spanning across the entirety of Westpac's business, including its former general insurance business. Some of the conduct is alleged to have occurred as far back as 20 years ago and to have continued until this day.
As such, many shareholders have opted to vote against the company's remuneration structure this year, including the Australian Shareholders Association (ASA) voting by proxy against the same.
The ASA noted the bank's remuneration framework "should support/facilitate positive behaviour and culture and WBC seems to have significant issues even though they are working towards resolving them".
As the ASA notes, there are still significant issues on Westpac's plate, and even with all its transformation programs, "as [it] turns over stones, more issues reveal themselves. It is considered that the problems have not been fixed fast enough".
What to expect moving forward?
Aside from its obvious issues, Westpac says it is committed to changing the narrative. It has put a firm order on exiting thermal coal mining by 2030, with lending to coal mining and to oil and gas extraction declining by 33% over the last two years.
Further, any new oil and gas customers must have public Paris aligned business goals and disclosures, the bank says. With respect to lending to electricity generation, almost 80% is to renewables, and it has set emission intensity targets for electricity generation for 2025 and 2030, per the release today.
However, low interest rates and intense competition will continue to impact sector margins, even as both the Australian and New Zealand economies are poised to rebound strongly from the pandemic.
Time will tell if the banking giant can convert on its said promises, whilst enabling a more productive culture that would prevent further scandals and ensure shareholders see value over the coming decade.
