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fair points. there's just one problem - having worked in the financial industry for the past 15 or so years and seen first hand the effects that the introduction of Dodd-Frank, MIFID II, and lately SFTR can have on a financial institution's day to day operations, i can just about guarantee that the consequences of something like this will not be a one off cost. the impact will be ongoing. yes this isn't a Dodd-Frank, but it's the same sort of theme - greater regulatory scrutiny. consider the following:* reputational damage. it takes years to build up positive reputation, and days to tear it all down. look at what happened with Wells Fargo a couple of years back, and that was "just" fraud - not facilitating crime/money laundering. hard to quantify as it's mostly intangible, but it is there and could be significant* additional audit/compliance/risk management personnel required to continuously monitor and provide a higher level of detail in reporting to regulatory authorities* slower on-boarding (and again more personnel required) of new clients/business due to stricter KYC (know your customer) procedures, which i suspect they may have been cutting corners with in the pursuit of profits* more time and effort spent by front office (ie. revenue generating divisions like sales desks) in learning and navigating the stricter and more complex regulatory requirements imposed on them, means they have less time for actually generating new business/revenue* additional technology personnel required to not just remediate, but also maintain more robust reporting systems* given the extra scrutiny on an institution following an incident like this, that means experienced audit and technical personnel familiar with the institution's existing processes and systems are required to ensure that it gets done right, and that it continues to be done right going forward. which takes away time that those personnel could have otherwise spent on projects that could improve profitability (eg. automation/optimising business processes, on-boarding new business)* this is just speculation on my part - i've worked at a few financial institutions though Westpac isn't one of them - but again, my guess is that this whole thing came about because of chronic under-investment in divisions like compliance, because they don't directly generate revenue. i'll give you a personal example. in my 20s i worked at one of the other big 4 banks. when i first started there, i asked one of the more experienced guys, who i knew thru conversation to also be a stock investor, how do i go about getting a staff trade approved. he said he didn't know. i said, but don't we need to get compliance to pre-approve staff trades before we place them? his reply: "well yeah, but nobody ever polices that, don't worry about it. go nuts mate - just trade whatever you want!". now that the spotlight is on them, if that was the case, they won't be able to get away with rampant cost cutting on those divisions any more, which means additional on going costs* Basel III is most definitely not a one off - it's been getting phased in over the last few years and is here to stay for the foreseeable future. Basel III is almost certainly going to restrict an institution's ability to pay dividends. given the banks were maintaining a 70-75% payout ratio before the advent of Basel III, i can't imagine they'd be able to sustain a higher payout ratio going forward, with final phases of Basel III about to be introduced in the next couple of years or soyou don't have to believe me. different points of view are what makes a healthy market after all. and there are obviously a lot of unknowns here, neither you, or i, or anyone else knows for sure what the outcome/penalty will be.but i know what i've seen inside the industry over the years, and more often than not regulatory impositions are going to be a significant drag on a financial institution's performance for years to come. i just wish that this was done as a renounceable rights issue. i would've gladly sold you my rights at a fair price!
fair points. there's just one problem - having worked in the financial industry for the past 15 or so years and seen first hand the effects that the introduction of Dodd-Frank, MIFID II, and lately SFTR can have on a financial institution's day to day operations, i can just about guarantee that the consequences of something like this will not be a one off cost. the impact will be ongoing. yes this isn't a Dodd-Frank, but it's the same sort of theme - greater regulatory scrutiny. consider the following:
* reputational damage. it takes years to build up positive reputation, and days to tear it all down. look at what happened with Wells Fargo a couple of years back, and that was "just" fraud - not facilitating crime/money laundering. hard to quantify as it's mostly intangible, but it is there and could be significant
* additional audit/compliance/risk management personnel required to continuously monitor and provide a higher level of detail in reporting to regulatory authorities
* slower on-boarding (and again more personnel required) of new clients/business due to stricter KYC (know your customer) procedures, which i suspect they may have been cutting corners with in the pursuit of profits
* more time and effort spent by front office (ie. revenue generating divisions like sales desks) in learning and navigating the stricter and more complex regulatory requirements imposed on them, means they have less time for actually generating new business/revenue
* additional technology personnel required to not just remediate, but also maintain more robust reporting systems
* given the extra scrutiny on an institution following an incident like this, that means experienced audit and technical personnel familiar with the institution's existing processes and systems are required to ensure that it gets done right, and that it continues to be done right going forward. which takes away time that those personnel could have otherwise spent on projects that could improve profitability (eg. automation/optimising business processes, on-boarding new business)
* this is just speculation on my part - i've worked at a few financial institutions though Westpac isn't one of them - but again, my guess is that this whole thing came about because of chronic under-investment in divisions like compliance, because they don't directly generate revenue. i'll give you a personal example. in my 20s i worked at one of the other big 4 banks. when i first started there, i asked one of the more experienced guys, who i knew thru conversation to also be a stock investor, how do i go about getting a staff trade approved. he said he didn't know. i said, but don't we need to get compliance to pre-approve staff trades before we place them? his reply: "well yeah, but nobody ever polices that, don't worry about it. go nuts mate - just trade whatever you want!". now that the spotlight is on them, if that was the case, they won't be able to get away with rampant cost cutting on those divisions any more, which means additional on going costs
* Basel III is most definitely not a one off - it's been getting phased in over the last few years and is here to stay for the foreseeable future. Basel III is almost certainly going to restrict an institution's ability to pay dividends. given the banks were maintaining a 70-75% payout ratio before the advent of Basel III, i can't imagine they'd be able to sustain a higher payout ratio going forward, with final phases of Basel III about to be introduced in the next couple of years or so
you don't have to believe me. different points of view are what makes a healthy market after all. and there are obviously a lot of unknowns here, neither you, or i, or anyone else knows for sure what the outcome/penalty will be.
but i know what i've seen inside the industry over the years, and more often than not regulatory impositions are going to be a significant drag on a financial institution's performance for years to come. i just wish that this was done as a renounceable rights issue. i would've gladly sold you my rights at a fair price!
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