The AUSTRAC court action couldn't come at a trickier time for Westpac Banking Corp (ASX: WBC) shareholders.
Speculation that it could be hit with the biggest fine in Australian corporate history for breaching anti-money laundering and counter terrorism financing laws 23 million times is only represents the pointy (and obvious) end of the iceberg.
The problem for Westpac and its embattled chief executive Brian Hartzer is that the development complicates its ongoing capital raising campaign.
Begging for money
The bank is holding out its cap to shareholders through a share purchase plan (SPP) in the hopes of raising $500 million. Any shareholder tipping money into the raise will essentially be paying a chunk of Westpac's yet-to-be-determined AUSTRAC fine.
The success of the SPP is also under a cloud now. Not only will shareholders likely be affronted by the idea of giving the badly behaving bank more of their hard-earned cash, the Westpac share price could crash under the SPP offer price of $25.32.
The stock tumbled 3.3% to $25.67 yesterday when the AUSTRAC news broke.
Trust us, we're bankers
Even if the SPP was successful, it's unlikely to be enough. The record AUSTRAC fine is $700 million, which is what Commonwealth Bank of Australia (ASX: CBA) paid for breaching similar laws 53,000 plus times. The scale of Westpac's indiscretions puts the bank on a totally different planet to CBA.
One would have to ask if institutions that readily participated in Westpac's $2 billion placement will sue to get their money back. The big question is at what point did Westpac get wind that AUSTRAC was coming after the bank, and if management had an obligation to more fully disclose this.
The timing of the court action and the capital raise is just too close for comfort – and comfort is something in short supply in the top echelons of the bank. This poses yet another risk to the Westpac share price.
Leadership shake-up adds extra risk
The public is baying for blood and Hartzer is under pressure to fall on his sword. I don't think he will be around to see his fifth anniversary in the top job (that would be in February 2020). A headless bank will put further pressure on the stock.
Then there is the upcoming annual general meeting (AGM). Westpac's AGM promises to be one of high drama with five of its directors standing for re-election. I am an angry shareholder and that will be voting against all the board's recommendations. I am pretty sure I won't be the only one who will use this once-in-a-year opportunity to make my displeasure known!
Westpac is likely to be the worst performing big bank stock for 2019. As of yesterday, this dubious position is shared between Westpac and Australia and New Zealand Banking Group's (ASX: ANZ) share price.
Both are sitting on gains of under 5% while CBA and National Australia Bank Ltd. (ASX: NAB) have rallied around 12% each.
Westpac's board should remember that fish rots from the head – and it's a bad stink.
