Hartzer’s Legacy of Bumper Profits Now Forever Tainted By Scandal

(Bloomberg) -- Brian Hartzer’s catchphrase to Westpac Banking Corp. colleagues was “it will be the numbers that do the talking,” as he pushed for improvements at the Australian lender.

In the end, the figure that spoke loudest for the Westpac chief executive officer was 23 million. That’s the number of money laundering offenses the bank has been accused of in the largest such breach in Australian history. The systemic violations were the result of “indifference by senior management and inadequate oversight by the board,” the agency said.

Among the most serious claims, the financial crimes agency said Westpac failed to detect payments made by 12 customers to Southeast Asian countries including the Philippines that were linked to child pornography and sexual abuse.

After initially attempting to tough it out, Hartzer resigned Tuesday, bowing to pressure from politicians and fed-up shareholders. His cause wasn’t helped by claims in local media that he had downplayed the severity of the scandal in closed-door meetings with bank executives.

“As CEO I accept that I am ultimately accountable for everything that happens at the bank,” Hartzer, 52, said in a statement. “And it is clear that we have fallen well short of what the community expects of us, and we expect of ourselves.”

Hartzer is the third of Australia’s big-four bank CEOs to be forced out in the past two years as the industry reels from one scandal to another.

Read more: Westpac CEO Hartzer Resigns

He was given 12 months notice and and will be paid out A$2.7 million ($1.8 million) in salary, but will forfeit all bonuses.

Since the allegations were first aired on Nov. 20, Westpac shares have fallen 8%, wiping about A$7.5 billion off the market value of the nation’s second-largest bank.

It’s an abrupt fall from grace for Hartzer who just a few weeks ago was using his position as the longest-serving of Australia’s big bank CEOs to criticize regulatory overload and weigh in on national policy debates such as tax reform.

Strong Start

The Australian-American joined Westpac in 2012 as head of its Australian financial services unit with responsibility for its most profitable business lines. He didn’t put a foot wrong in the role, widely seen as an audition for the top job. When he became CEO in 2015, it was second-time lucky for Hartzer, who had previously been considered for the chief executive position at Australia & New Zealand Banking Group Ltd., where he worked for about a decade.

Hartzer quickly stamped his authority on Westpac. On his first day as CEO he dissolved the unit he’d led, and had all division heads -- including the technology team -- report to him personally.

For a period all went well. From 2015, Westpac notched up four consecutive years of record profit, culminating in a bumper A$8.07 billion in 2018. By this point though, the gloss was already starting to come off the Australian banking sector, as a housing slowdown started to eat into the lender’s massive mortgage business.

Even more devastating were the conclusions of the independent inquiry into financial industry misconduct, which lambasted the banks for a runaway culture of greed and poor behavior.

For Hartzer, the mortgage slowdown and the billion-dollar-plus bill for compensating customers brought the run of profit growth to an end in November, when Westpac reported its worst earnings since the global financial crisis. The bank slashed its dividend and said it would tap shareholders for A$2.5 billion in new capital.

‘Disappointing Year’

While acknowledging it had been a “disappointing year,” Hartzer said the bank had acted “decisively to respond to the challenging conditions” and that the franchise was in “good shape.”

There was also quiet satisfaction within the bank that Westpac had emerged from the misconduct inquiry in a relatively better position than its rivals. It also won a landmark legal case against Australia’s securities regulator, which was unable to prove its case that Westpac had breached mortgage-lending rules.

Hartzer’s tendency to push back against regulators helped give him the reputation as the most pugnacious of the Australian banking CEOs. For example, in 2018 Westpac was the only one of the big four banks to contest in court allegations it attempted to manipulate a key Australian money market rate. In the end, Westpac paid a A$3.3 million fine, much smaller than the A$50 million settlements with ANZ Bank and National Australia Bank Ltd.

The Princeton graduate and history buff stood out from his peers by making forthright comments in defense of the banking industry, such as its importance in supporting economic growth, despite the damage to the sector’s reputation from the Royal Commission.

Ultimately though, Hartzer legacy will now be tarnished by the money laundering scandal that forced him to step down as CEO.

To contact the reporter on this story: Emily Cadman in Sydney at ecadman2@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Peter Vercoe

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