Westpac AML breaches could have been predicted
Westpac’s mass breach of anti-money laundering laws and its subsequent rapid fall in share price could have been foreseen by ESG-focused investors, with red flags having appeared around the company’s governance processes long before the results of AUSTRAC’s investigation into the bank were revealed, according to Acadian Asset Management.
Addressing a media lunch in Sydney last week, Acadian portfolio manager Matthew Picone said the fund manager had already pinpointed Westpac as a stock to avoid prior to last month’s scandal.
“We had a negative view of Westpac over the last few months and a large portion of what was driving that investment view was our view of management and governance in the portfolio, so that has allowed us to avoid the negative returns associated there,” Mr Picone said.
He added that assessing the performance of companies from a governance perspective was based mainly on factors such as board and management composition and behaviour.
“You are looking at the structure of the board, the experience of the board, the tenure of the board, if there is too much turnover in board members or in management, if there is a lot of excessive turnover, that could be a bad sign,” Mr Picone said.
“There are also factors we look at where we can systematically assess the financials of companies, looking for forensic accounting-type metrics, so we can get a gauge if there’s any abnormal or questionable accounting standards in the way that they report.
“A lot of the factors in general are non-linear in payoffs, so if you score well on something, you don’t necessarily outperform; but if you score poorly, that is when there is often a sign of trouble.”
Mr Picone said Acadian’s ESG systems had also picked up governance issues at Slater and Gordon, IOOF and AMP prior to their involvements in subsequent scandals that damaged share price.
“We are doing some research at the moment around ESG events and controversies, looking at how we protect the portfolio against those, and we find that in general we’ve already got a negative view of those companies,” he said.
“A lot of the time, that is driven by our governance scores.”