Westpac Admits To $34m Error In Books
Sydney Morning Herald
Saturday September 16, 2006
WESTPAC Bank has confessed to a systematic error in the way it calculated interest income from credit cards that will blow a $34 million hole in second-half profits.
Its shares slipped more than 3 per cent during Friday trading after the bank also revealed it expected a dramatic decline in its reported net interest margin in the second half. Westpac's chief financial officer, Phil Coffey, fronted a teleconference of analysts and media at which he admitted the error. "I am very disappointed in having to inform you of this error," Mr Coffey began, describing it as "unacceptable". The blunder originated from changes made to Westpac's accounting methods in early 2005 and was only discovered this year as part of routine planning processes. Mr Coffey insisted no customer accounts or interest charges had been affected, with the problem confined to internal bookkeeping. "The process for determining credit card interest accrual income on a monthly basis had not been adequately reconciled to the actual interest earned," he said. "The nature of our error saw those overstatements being carried forward and resulted in the compounding over time." One analyst, Brian Johnson from JP Morgan, said the bank 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 replied, promising that bank processes were being tightened, staff responsibilities reviewed and management heads would roll as a result. Westpac said it expected to deliver cash earnings per share growth of 9 to 10 per cent in its financial year ended September 30. This was at the low end of some analyst expectations. After a modest recovery near close of trade, shares finished 2.3 per cent, or 55c, lower at $22.95 on Friday. Adjustment for the interest over-accrual debacle will have a relatively minor impact on annual profits, which last year totalled nearly $3 billion. Of most concern for investors in Friday's mea culpa was news of the bigger than expected margin decline. Westpac's reported net interest margin, an important indicator of the profitability of its loans, will contract by 14 to 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. He said only that the credit card interest calculations and a changing mix of products in Westpac's treasury and financial markets businesses had played a part.
© 2006 Sydney Morning Herald
