Under IFRS accounting rules Westpac is likely to be carrying the cost of future trail commissions on its balance sheet.
Now it has decided to end trail commissions to mortgage advisers next year that liability can be written back. Sources suggest the one-off profit could be as much as $70 million.
Squirrel, which accounts for around 5% of Westpac’s book, told shareholders that it will record a one-time non-cash flow loss of $3.5 million from the new Westpac model.
This is a $4 million loss, offset by a $500,000 partial offset from increased upfront commissions from the bank.
This is essentially a write-down of its balance sheet asset.
TMM asked Westpac chief executive Catherine McGrath whether the bank will record a one-off profit.
“I can't comment on that, sorry,” she said. “And generally, exactly how we do our accounting treatment isn't something that we would share more broadly anyway.”
When specifically asked whether Westpac will book a one off $50 million profit, as sources suggest, she responded; “Certainly not anything that I'm aware of.
“I don't know what speculation they're making, but as I said, specifically, how we do that isn't something I necessarily I wouldn't talk about.”
Mortgage advisers are particularly unhappy with Westpac and that is clearly demonstrated in TMM’s annual survey of advisers. The results of the survey will be published in the next issue of the magazine.
While there is an acceptance Westpac is entitled to make commercial decisions, advisers are mightily angry at how Westpac managed this process and its lack of consultation with advisers.
It choose instead to communicate only with the heads of dealer groups.
McGrath told TMM she did not expect the move to have a negative impact on business written by advisers.
However, the TMM survey shows exactly the opposite.
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