It’s nice work if you can get it. While the financial services sector continues to lay-off thousands of staff (Commonwealth bank announced last month that it would be sacking 400 workers), former St George and current Westpac boss, Gail Kelly, recently cashed in some of her equity in the bank, selling 250,000 Westpac shares on 8 May 2009. Kelly reaped just over $5 million from the sale, to augment her cash remuneration last year of more than $4 million.

Kelly still holds 1,224,270 Westpac shares and indirectly owns 1,243,190 shares in the bank, largely due to her shareholding in St George, which was taken over by Westpac last December. (Kelly also received 277,639 shares, worth around $5 million, under Westpac’s Restricted Share Plan as a sign-on bonus). The value of Kelly’s shareholding based on Westpac’s current share price is more than $47 million.

Westpac shareholders may well be questioning whether they are receiving value for money from Kelly. As Robert Gottliebsen and Tony Boyd have suggested in Business Spectator , Kelly’s acquisition of St.George (announced in May 2008) was horribly timed, occurring shortly before a global banking downturn.

As Boyd noted, along with St George came the bank’s troubled property loan book, with “Westpac’s portfolio of stressed commercial property including St George now [totalling] $3.96 billion, up from $1.16 billion before Westpac bought St George.”

Boyd continued:

…A closer examination of the numbers shows that part of the surge in impairments for St George is because of its loan book being brought within the Westpac fold and conforming to Westpac credit disciplines.

Maximum loan to value ratios have been reduced, minimum interest cover has been aligned between Westpac and St George and return hurdles have been increased to reflect the increased cost of funds and risk profiles.

Not only were Kelly and the St George board guilty of utterly failing to understand the state of the global economy (despite the unfolding credit crisis in the United States), Kelly’s seeming lack of appreciation of the problems befitting St George’s loan book are inexcusable given she was the long-time CEO of the New South Wales-based bank.

That Kelly has been able to amass personal wealth of more than $50 million is an indictment of the remuneration structure and quantum paid to leading bankers (bank CEOs are among the highest paid workers in the country).

This is despite the industry prospering largely due to the good graces of the Federal Government (through its wholesale funding and deposit guarantees) and by charging its customers $11.6 billion in fees last year.

Peter Fray

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