DBRS Morningstar downgrade Westpac in light of transaction scandal

Written on the 28 November 2019 by Matt Ogg

DBRS Morningstar downgrade Westpac in light of transaction scandal

The ripple effect of money laundering allegations at Westpac (ASX: WBC) continues to be felt with the bank's long-term ratings trend now called into question.

Global credit ratings business DBRS Morningstar has downgraded Westpac's long-term ratings trend from stable to negative, citing "serious shortcomings in operational risk" in light AUSTRAC's civil penalty proceedings against the bank.

The corporate regulator claimed Westpac failed to report more than 19.5 million international funds transfer instructions, and failed its due diligence on South East Asian transactions with signs of potential links to child exploitation.

Westpac's CEO Brian Hartzer and chairman Lindsay Maxstead both resigned in the wake of the scandal, the former with a $2.69 million cheque.

The bank has retained its AA rating as a long-term issuer and for long-term debt, which means DBRS Morningstar believes Westpac has superior credit quality with a high capacity for the payment of financial obligations.

According to the rating agency's definitions, this means Westpac is unlikely to be significantly vulnerable to future events.

Meanwhile it gives Westpac a short-term issuer rating as R-1 (high), which is the highest credit quality possible.

Nonetheless, Westpac's alleged systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) Act 2006 has caught the agency's attention.

"It is currently unclear to what extent the Group's earnings and capital may be negatively impacted by potential penalties or if the Group's franchise or funding ability may be affected given the likely serious deficiencies in governance," DBRS Morningstar said.

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Author: Matt Ogg

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