Card Error Punches $34m Hole In Westpac
The Age
Saturday September 16, 2006
WESTPAC Bank has admitted a systematic error in how it calculated interest income from credit cards. The error will blow a $34 million hole in second-half profit.
Westpac shares plummeted more than 3 per cent during trading yesterday after the bank also revealed it expected a big fall in its reported net interest margin in the second half. Chief financial officer Phil Coffey admitted the error at a teleconference with analysts and the media. "I am very disappointed in having to inform you of this error," he said, describing the error as "unacceptable". The blunder originated from changes to Westpac's accounting methodology early last year, and was discovered only this year. Mr Coffey said no customer accounts or interest charges had been affected, with the problem confined to internal book-keeping. "The process for determining credit card interest accrual income on a monthly basis had not been adequately reconciled to the actual interest earned," Mr Coffey said."The nature of our error saw those overstatements being carried forward, and resulted in the compounding over time." JPMorgan analyst Brian Johnson said Westpac had an emerging history of accounting errors, most recently in unit pricing. "We keep on hearing that you guys have gone through and cleaned it up, but there seems to be this track record of this re-occurring," he said. "That's a fair cop, Brian," Mr Coffey said, promising that bank processes were being tightened and staff responsibilities reviewed, and that some management heads would roll. Westpac said it expected to deliver cash earnings per share growth of 9 to 10 per cent in its financial year ended Septem-ber 30. This was at the low end of some analysts' expectations. After a modest recovery near close of trade, Westpac shares finished 55?, or 2.3 per cent, lower at $22.95. Adjustment for the interest overaccrual debacle will have a relatively minor impact on annual profit, which last year totalled nearly $3 billion. Of most concern for investors was news of the bigger than expected margin decline. Reported net interest margin, an important indicator of profitability from loans, will contract by 14-19 basis points this year, compared with 3 basis points last year. Mr Coffey repeatedly refused to elaborate how much of this decline was due to price cutting in response to competition.Westpac will unveil its full-year results on November 3.
© 2006 The Age
