Westpac investors yawned yesterday at the news the bank was quitting the financial advice sector while overhauling its management structure that will two of its most senior executives leaving the bank.
The lack of interest is despite a big cost on the changes – $250 million to $300 million over time. Perhaps that was due to Westpac’s forecast of cutting $280 million a year in costs and a bit more from its ongoing cost base.
The move by Westpac is the latest from a major financial institution to reshape itself by removing a contentious business in the wake of the Hayne royal commission into banking and financial services.
The shares edged up 0.5% to $26.77 but then eased 0.3% in the afternoon to end at $26.42 on the news, (which was well anticipated in the morning media yesterday) that Westpac will be rolling BT Financial Group into its consumer banking division, with current consumer bank chief George Frazis and BT chief Brad Cooper leaving the company.
Westpac said in a statement to the ASX yesterday that following a review of its advice business, it would no longer provide advice to customers through its salaried planners working for BT Financial Group, or through authorised representatives it owns.
The business is a loss maker for Westpac which has also understood the message from the banking royal commission that advice and fees do not sit well with customers, especially if there are any disputes.
The revamp is actually a major cost cut.
According to the statement, the changes reflect Westpac’s commitment to supporting customers through their financial lives, while responding to the changing external environment.
Changes include:
- Realigning its major BT Financial Group (BTFG) businesses into the Consumer and Business divisions.
- Exiting the provision of personal financial advice by Westpac salaried financial advisers and authorised representatives.
- Moving to a referral model for financial advice by utilising a panel of advisers or adviser firms.
- Entering into a sale agreement as part of the exit with Viridian Advisory, which will see many BT Financial Advice ongoing advice customers offered an opportunity to transfer to Viridian. A number of the Group’s salaried financial advisers and support staff will transition to Viridian from the anticipated completion date of 30 June 2019.
- Simplifying the bank’s structure and re-organising Group Executive responsibilities.
- Continuing to invest in the BT brand, reflecting its strength and market position, although BTFG will no longer be a standalone division.
- Unlocking value by exiting a high cost, loss-making business.
Westpac chief executive officer, Mr. Brian Hartzer, said: “We are committed to supporting our customers’ insurance, investment and superannuation needs as part of our service strategy. The changes we’re announcing today are about focusing our investment where we have genuine competitive advantage and growth opportunities.”
Westpac reckons that the changes are expected to be earnings per share positive in 2020 due to exiting a high cost, loss-making business.
The one-off impacts from the transaction and implementation will be spread over both the 2019 and 2020 financial years with initial estimates, including one-off costs, of between $250 million and $300 million.
Westpac estimated the changes would excise a loss-making business and cut costs by around $280 million a year. That should prove a handy boost to earnings.
The divisional changes will start April 1, but will not be reflected in Westpac’s March 31 half-year results due for release in early May.
