Public

Westpac (WBC) 2015 AGM Voting Intentions

Company/ASX Code : Westpac Banking Corporation (WBC)
Registry : Link Market Services
Poll/Show of Hands : Proposed poll on all items
Webcast : Yes
Venue :
10am Sofitel Sydney Wentworth
61-101 Phillip Street,
Sydney, New South Wales
Monitor : Ms Carol Limmer
AGM Details / NoM : Friday 11th December, 2015
ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

WBC financials are in line with information given at time of announcing their $3.5bn capital raising. NPAT is up 6% at $8.012m, cash earnings up 3% at $7.82m, cash EPS up 2% at 249.5c, dividend (fully franked) up 3% at 187cps, expense to income ratio at 42% is market leading, net interest margin is unchanged and cash ROE is down 57 basis points at 15.8%. 

WBC agrees that it is getting hard to keep ROE at that level. WBC has a strong balance sheet position, common equity Tier 1 capital is 9.5%, lending growth is up 7 % and customer deposit growth is up 4%. 

Retail and business banking have been the main drivers but all parts of the business have experienced some growth. A small part of the BT business has been sold off but there are currently no plans for any further sell down. The Asian business is still growing capability in a measured way. Expense increase is being maintained at a relatively low level with a 2-3% target despite a significant technology investment. More branches are being closed and others are being downsized – this is not being carried out in a radical way. Asset quality has further improved with impaired assets declining 19% and delinquent accounts remaining low.

Retail and business banking customers have been migrated to their new online/mobile platform, which has been rated No. 1 in Australia and No. 2 in the World. Other online systems and platforms have also been launched.

WBC has 13.1m customers, 2.98 products per customer (up 2%) and customer complaints are down 31%.

WBC is good on Corporate Social Responsibility and Diversity tests and again are the most sustainable Bank globally in 2015 Dow Jones Sustainability Index. Succession planning has been sound in that there was an internal world class senior executive available to step into the CEO role. There is an active Board renewal program.

The word ‘service’ has been added to their vision (‘To be one of the world’s great service companies, helping our customers, communities and people to prosper and grow’). Their strategic priorities are Performance Discipline, Service Leadership, Digital Transformation, Targeted Growth and Workforce Revolution.

WBC indicated that they are pleased with how their capital raising is progressing. It was good to see that a reminder was sent to shareholders. Whilst the capital raising will have a dilution effect WBC will still be within top quartile of banks globally with CET ratio of over 14%.

WBC was first of the major banks to announce an interest rate increase (the other three majors announced increases shortly after) but in a communication sense, they had the capital raising to announce around the same time.


ASA Position
For
Item 2: Adoption of Remuneration Report

There is an introductory letter from the Chairman of the Remuneration Committee included in the Annual Report. This letter mentions that the 2012 LTI grant qualified for 36% vesting this year. Also, it is stated that with appointment of new CEO and various senior executive changes WBC have, consistent with prior commitments, had all starting at lower remuneration levels than previous incumbents. 

The revised remuneration framework outlined in last year’s report has been implemented with deferred component of STI increased from 40% to 50% and with deferral over 2 years as well as an extended performance period (4 years) introduced for LTIs.

The LTI has 2 hurdles (EPS and TSR) and weightings applied so that their major competitors (the other 3 major banks) have higher weightings applied.

They use ‘fair value’ rather than the ASA preferred market value in determining the number of performance share rights allocated.

The CEO and Group Executives are expected to build and maintain substantial WBC shareholding within 5 years. Actual remuneration is shown in the Annual Report in addition to the (mandatory) statutory requirements.

​There has recently been quite an amount of media coverage on executive remuneration at WBC, initially, it seems, sparked by one of the proxy advisers recomending a vote against the Remuneration Report at the forthcoming AGM. A range of media commentary followed, some with a less critical approach than the initial coverage.

At this stage, it is understood that two other proxy advisers have recommended a Yes vote on the Remuneration Report.

The initial newspaper report indicated that in the 2014/15 year, senior executives received a gain by having capitalised software expenditure of $354 million being excluded from cash earnings with cash EPS being one of the performance hurdles for long term incentives (the other hurdle is TSR). It is stated that if under what was a new policy for capitalising software the write off had been included then the Cash EPS hurdle for the 2011 would not have been met. The largest beneficiary of this would be the formeer CEO, Gail Kelly. Other senior executives also benefitted.

However, in addition to the capitalised software write down there were other one-offs viz the partial sell down of BT Investment Management at $665 million benefit and some Lloyds tax adjustments of $64 million, which were also excluded from the cash earnings. All up, the adjustments were $375 million net positive.

Westpac has provided ASA with a comprehensive commentary on the matter and it is understood that the Chairman will specifically address the issue at the AGM.

On balance, ASA still favours voting for the Remuneration Report.


ASA Position
For
Item 3: Grant of equity to Managing Director/CEO Brian Hartzer

MD and CEO, Brian Hartzer, commenced in his new role in February 2015 and, in respect of period in MD and CEO role, a 2015 LTI grant of 119,476 Performance Share Rights (PSRs) is proposed. He received 34,263 PSRs for the time in his previous role. In addition, a grant of 204,139 PSRs is proposed for 2016. The (fair) values have been calculated as $1,685,330 and $2,528,000m respectively as against a face value of $3,704,950 and $6,330,350 respectively. As mentioned under Item 2 above, recent vesting of LTI was at 36% only. Also, as mentioned above, there is a weighted, composite TSR index hurdle and an EPS hurdle.  


ASA Position
For
Item 4(a): Re-election of Ms Elizabeth Bryan as a Director

Ms Bryan has been a NED at WBC since 2006 and the Board has exercised its discretion to extend her tenure beyond their normal 9 year limit but because of their tenure policy she is required to stand for re-election each subsequent year. She chairs their Board Risk & Compliance Committee and is a member of the Nominations and Remuneration Committees. Ms Bryan is Chair of Caltex, Virgin and Deputy Chair of IAG. She has extensive experience as a director and was previously MD of Deutsche Asset Management.  She holds 26,801 WBC shares.


ASA Position
For
Item 4(b): Re-election of Mr Peter Hawkins as a Director

Mr Hawkins has been a NED at WBC since 2008. He chairs the Technology Committee and is a member of the Audit, Nominations and Risk & Compliance Committees. He is a Director of Mirvac, Murray Goulburn Co Ltd, MG Responsible Entity Ltd, Liberty Financial Ltd and Clayton Utz. He was previously a Director of BHP (NZ) Steel Ltd, ING Aust. Ltd, Esanda Finance and Visa Inc. He has 40 years banking and financial services industry experience, both in Australia and overseas and has held various senior management and directorship positions within ANZ from 1971 to 2005. Mr Hawkins holds 16,588 WBC shares.


ASA Position
For
Item 4(c): Election of Mr Craig Dunn as a Director

Mr Dunn has been a NED at WBC since June 2015 and is a member of the Risk & Compliance and Remuneration Committees. He has extensive Board experience and currently chairs Stone and Chalk Ltd. He has over 20 years experience in financial services, including CEO of AMP from January 2008 to December 2013. Mr Dunn holds 8,500 WBC shares.


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