Compare the ANZ, look at New Zealand and wonder about housing …
that’s the message for this week’s interim earnings statement from
Westpac. As well ask about forex trading losses, derivatives holdings
in foreign exchange and succession.
Westpac is the third or fourth largest bank in Australia. With
the ANZ reporting a profit of $1.241 billion for the six months to
March, Westpac will have to boost earnings by around 11-12% to top
that. Westpac’s cash earning totalled $1.095 billion in the March
half last year and $1.176 billion in the September half.
Unlike the ANZ, which reported a clean result with no nasties, there’s
the case of the $12 million forex loss reported by Crikey last month
for Westpac to explain. They will probably argue that it was a normal
loss offset by profits in a trading room environment. But in the
post-NAB forex debacle climate, it’s unwelcome news for a bank that
prides itself as one of the best run and socially responsive in the
Certainly it’s better run than the NAB. Any bank is better run than the
NAB at the moment. So what’s to look for in the Westpac result?
Well earnings forecast range is 6-10 per cent and seeing how companies
always like to deliver at the top end, look for a 10% plus performance
in cash earnings and a 10% plus boost in dividend. There’s also the
chance of some more capital management. But banks sometimes like to
keep that till the end of the year to keep restive shareholders happy
in the run-up to the annual meetings in December.
But just remember the modern Australian bank is merely a capital
management operation. They charge what they think the market will bear
in fees and charges. Blame the Reserve Bank for interest rates, which
allow them to make nice, comfy profits on mortgages and mildly compete
in the business area. Until the NAB’s stupidities, Risk Management was
a theoretical concept for most banks.
Westpac though has a couple of issues to contend with. The
following is from its New Zealand website and sums up probably the
“Westpac Banking Corporation ABN 33 007 457 141, incorporated in
Australia (New Zealand division).” This means that Westpac’s New
Zealand operation is actually an unincorporated branch of its
Australian operation. New Zealand banking authorities say no longer and
want that to change.
Like the ANZ, Westpac has to deal with a newly assertive Reserve Bank of New Zealand.
Sometime this year the RBNZ hopes to have done a deal with Westpac on
local incorporation. The RBNZ would like the deal stitched up by
June-July at the latest and Westpac is negotiating for a compromise
that will save it from paying hundreds of millions of dollars of
For those analysts and journalists tooling along to Westpac
presentations, this would be an interesting area to focus. And we are
not talking small bickies here. In the six months to March last year
Westpac’s NZ business lifted earnings 46% (10% for the full year to
September). Westpac says 20% of its earnings come from New Zealand, so
it’s no tiddler.
Anything that disturbs that will put a crimp on overall bank
performance, and crimp the very promising career of Anne Sherry, who’s
emerged as the best placed senior executive to succeed Dr David Morgan
when he goes in a couple of years time.
That’s the next area of interest. Succession. Mike Pratt, head of
Westpac’s consumer business, is also a contender. But seeing how
Westpac prides itself on being a clean, green caring, new age
socially-aware bank, a woman CEO of an Australian bank would be a
ground-breaker, and just the thing to make the board feel pleased with
So Crikey says have a punt on Anne Sherry, with a saver on Mike Pratt in the succession stakes.
Anne Sherry moved to New Zealand after running the Bank of Melbourne
for a couple of years. Before that she was the Bank’s HR head. So of
all the senior management group in the bank, she has the necessary
skills to tackle the two most important areas: costs (ie. “Human
Resources”) and risk management.
In New Zealand she’s getting that in an operational sense as well as
pushing the New Zealand business to lift its marketing game. As well
she runs around 5,000 or so people. Quite an operation.
And there’s the structure of the New Zealand Westpac to sort out, with the bods back in Sydney head office.
Big companies do not move people out of non-operational roles like HR
into direct reports like the Bank of Melbourne and running an important
operation like New Zealand without a lot of care, for thought and the
expectation that someone like Anne Sherry will be ready at the
appropriate moment to be a contender for the top job.
In so far as Westpac’s overall performance, this is what David Morgan
said recently at a lunch in Sydney. “We are reporting our half-year in
early May so you understand I can’t pre-empt that but you have seen
that 20 per cent decline in new dwelling finance approvals in that
first quarter and obviously we participated in that. [The housing
downturn is] pretty broadly based. In price terms, we are seeing
greater price adjustments in the investment sector than in the
owner-occupied segment and within that in some of the more hotspots,
which have been inner Melbourne and inner Sydney.”
So there’s a hint that housing might be hurting the bank. We saw the
two rate rises put a crimp on ANZ margins, but that was only at the
edges. ANZ’s mortgage business remains very viable.
And so with Westpac, especially with the Australian Reserve Bank’s
figures for March, released on the last day of April, showing a
surprise surge in the amount of money lent by banks for housing.
The banks all tell us that as home lending slows, they will be lending
more for business. But with business lending contracting in March
for the second month in a row, and off sharply from the peak last
September-October, you’d have to question that.
In fact it could very well be that business profits and cashflows are
robust enough at the moment for many corporates not to need new or
additional finance from the banks.
Hence the move by the struggling NAB to go through with its proposed charge on internet banking by small and medium business.
Now the banks have told us over the years that ATMs would be fee-free
because they reduced the cost of business, that telephone banking would
be free, that the internet would be fee free, that EFTPOS transactions
would also be free. What else. Ahh, the air in bank branches or outside
ATMs. Now that’s free, at the moment. What else, Of course, there’s the
standard bank promise that they are there to help their customers and
the community. No, they all ready charge us for that fib!
And no doubt Westpac and David Morgan will boast how its BT funds
management business is back in business and performing well, yes but
are the punters with their money in the various funds still doing well
after fees and charges?