This unhappy Westpac shareholder has a message for the board
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Over the past month has witnessed more than $14 billion of wealth destruction for its 610,000 shareholders.

It’s hard not to have a sense of déjà vu.


Gavin Solomon led a shareholder revolt against Westpac in 1992. But the and its managers didn’t learn their lesson. Louie Douvis

From May to September 1992, I led a shareholder revolt against the Westpac board and its auditors. It started with me placing a small ad in The Sydney Morning Herald asking if any aggrieved shareholders wanted to push for changes at board level and auditors. During that time, I was on front pages, on television, received death threats and insults.

However, by late September 1992, I represented some 15 per cent of Westpac shareholders plus the groundswell support of emotional investors.

Westpac had suffered one of the worst shortfalls in a rights issue in Australian history. Seeking $1.2 billion, they managed to raise only $400 million. Remarkably, the biggest rights issue investor was AMP, who shared several board members with Westpac.

Six months earlier, Westpac Sir Eric Neal had told shareholders “the worst is all behind us and our future is rosy”. Yet within four weeks Westpac announced unreported losses of $600 million, primarily related to computer system errors between Westpac and its subsidiary AGC.

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On October 2, 1992, following the catastrophic rights issue, the chairman and six directors of Westpac “walked the plank”, as reported by the SMH at the time. I still have a framed copy of the headline. A few months later at an extraordinary general meeting in December, the auditors were removed and a new constitution passed. I was invited by the new board to have input into the creation of the new constitution.

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The arrogance and intransigence of the Westpac Board in 1992 and again in the past few weeks is astounding. Once again, the board and management appear to be focused on protecting their personal positions rather than any real concern for shareholders, customers or the community.

When the 1992 loss was announced, then Frank Conroy did the honourable thing and resigned immediately, even though errors occurred on his predecessor’s watch. Conroy went on to St George Bank.

Compare that to Brian Hartzer, who didn’t resign until he was hit over the head with a reality stick.

In 1992, when I became aware of Westpac’s conduct through a client of mine, I bought 100 Westpac shares at $2.50 so I could attend and vote at the EGM. It’s important to note those shares have now risen 830 per cent (excluding dividends), but Commonwealth Bank shares are up more than 960 per cent over the same period.

Over the years my super fund has been buying Westpac shares, and I even participated in the $2 billion placement. I’m a believer in the institution of Westpac.

History repeats

Fundamentally, boards are in place to protect and grow shareholder value. Under chairman Lindsay Maxsted, who took on that role in December 2011, Westpac’s share price has grown 20 per cent, while CBA is up 66 per cent. Since Hartzer became chief in February 2015, Westpac’s shares have fallen 28 per cent; CBA is down 10 per cent.

One big question for me is why did Westpac need to do the $2 billion institutional placement last month at a hefty discount, which is typically associated with more speculative companies? The reason for the raising was to top up its tier 1 capital, yet Westpac is now faced with what could be a fine of a billion dollars or more. Again, shareholders will lose.

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I also believe the CEO and the board must have or should have known of the system problems which resulted in the AUSTRAC investigation.

Was the board asleep at the wheel, or did they know of the issue and hope it would not be made public?

When reading the AUSTRAC statement of claim, it reeks of frustration by the regulator regarding Westpac’s inaction. AUSTRAC finally gave up and commenced proceedings. It is a board’s job to manage the relationships with regulators and keep those on a solid footing. That did not happen in this instance.

Class action lawyers are now circling Westpac. But maybe it’s time to consider changes to legislation to make directors personally liable if gross negligence is established.

To quote Karl Marx: “History repeats itself, especially when you ignore it.”

Gavin Solomon is founder of PrimaryMarkets and a Westpac shareholder.

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