"Mack the Knife" is back in town. When Barclays and Aviva were in turmoil in the UK, John McFarlane jumped in as chairman and overhauled them. He slung out executives and slashed costs at the bank and the insurer, as he had before as chief executive of ANZ.
Now another Aussie lender, Westpac, will taste the Scotsman's cold steel.
The battered bank presents its new chairman with a whole new level of challenges.
Westpac stands accused of 23 million money laundering breaches, including handling payments allegedly related to sexual abuse of children. Damage to the reputation and finances of Barclays from a rate-rigging scandal was minor in comparison.
Each civil penalty for money laundering could cost up to US$14m ($21.1m). Fines therefore have a notional upper limit running into many trillions. The far lower penalties that might in practice materialise could still heftily damage Westpac net profits, which stood at US$4.7 billion in 2019.
The 72-year-old, who has come out of semi-retirement, has form in handling scandals. At Barclays these included payment protection insurance mis-selling and a row over a whistleblower featuring chief executive Jes Staley.
Westpac's own CEO Brian Hartzer resigned and was replaced by an interim boss. McFarlane can be expected to seek a tough, intuitive CEO to take his place, running Westpac hands-on in the meanwhile.
Just as well. Westpac needs to make quick disposals. Local regulators have imposed higher capital requirements. But selling businesses into Australia's faltering M&A markets will not be easy. Low-priced deals would be bad for earnings, just as fines would.
Westpac's return on equity of 10 per cent in the year to September, while respectable, is down a third over four years. The shares have slipped 16 per cent since a September high. Yet a valuation of 1.3 times book is too high compared with the sector average.
McFarlane's longer-term challenge will be to keep investors loyal to Westpac. The bank relies heavily on a weakening home market, weighed down by wildfires and slowing wage growth. Shareholders prize a dividend yield that at 10 per cent looks unsustainably high. Diversification abroad could mean cuts to payouts.
That helps explain the muted reaction to McFarlane's appointment. In the UK, opinion is deeply divided on his credentials — Barclays shares have struggled. His single-mindedness and experience are beyond doubt. Mack the Knife could give Westpac the edge it seeks.
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