Via UBS’ excellent Jonathon Mott:
WBC is finding it very difficult to estimate the potential remediation requirements for customers served via aligned planners, especially as many planners no longer work under BTFG Licences and in many cases have left the industry. WBC indicated that it generated fees of $966m from this channel in the decade to 2018. Using the loss rate above and adding ~$55m in administrative costs this equates to the ~$460m in potential provisions we believe WBC may need to take with its 1H19 result.
WBC indicated that around $185m (half of the $370m above) in remediation provisions related to consumer and business banking. A large proportion of these rebates are for customers with Interest Only loans where WBC failed to switch back to Principal & Interest at the end of the IO term (given the higher interest rate charged on IO and the unamortised loan balance stayed higher for a longer period of time). We see this as alarming as Interest Only loans peaked at 50% of WBC’s mortgage book in FY17.
